Avoiding 40% Tax

Goodproblemtohave

I currently receive a DB pension and drawdown a DC pension so annually I receive just under the 40% tax threshold. I will receive the state pension at aged 67.

My DB pension and the state pension together will be just about on the 40% threshold. At this point I'll be left with a DC pot of approx £50k.

Is there anything I can be doing now or at aged 67 to get at this £50k without paying 40% tax ?

I've already taken my full 25% tax free lump sum and explored deferring my state pension but I can't get the numbers to work. Any ideas ??

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/6687812/avoiding-40-tax

Do you still contribute to the DC pension?

Or make Gift Aid payments?

tacpot12

Why doesn't deferring the State Pension work? I know you have to defer it for a minimum of 9 weeks, but you will struggle to spend £50K in 9 weeks. (Won't you?)

Your should also consider that having 60% of the moeny to spend is better than having none of it. Being in a position to pay 40% is great. Take it out, bung it in an ISA and keep it invested so that you can have more income in the future, or leave it where it is incase you don't need it. You probably won't.

Most of us are going to find ourselves in your situation in future (me included) and we will all be living up to your user name!

Hope you continue to enjoy your retirement.

tp

eskbanker

Most of us are going to find ourselves in your situation in future (me included) and we will all be living up to your user name!

Massive generalisation alert! I think you'll find that trying to avoid higher rate tax in retirement is some way from a universal experience…

sheenas

Unless you have already done so taking a tax free lump sum might be a solution and reducing the drawdown amount.

Goodproblemtohave

How could contributing to my DC pension help? Wouldn't tax relief I get paying in just be offset by the same tax on it when I take it out ?

Re Deferring my state pension - I looked at say 4 years until my remaining £50k DC pot was empty but took an awful lot of years drawing the extra state pension to breakeven versus the 4 missed years.

I'll look into giftaid - thank you.

Thank you to those who have replied. Hope I didn't come across as mean-spirited as 100% recognise I'm super fortunate to be in the position I am hence the user name !

eskbanker

How could contributing to my DC pension help? Wouldn't tax relief I get paying in just be offset by the same tax on it when I take it out ?

The tax isn't the same though, given 25% tax free on withdrawal…

MeteredOut

https://forums.moneysavingexpert.com/discussion/comment/82178374#Comment_82178374

Not if the tax rate thresholds continue to be frozen ;)

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/82178457#Comment_82178457

The gross contribution (presumably a maximum of £3,600 for you) will increase your basic rate band.

And, unless the Lump Sum Allowance limit is a factor, you will get 25% TFLS when you take it back out.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82178452#Comment_82178452

From the OP.

I've already taken my full 25% tax free lump sum

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82178457#Comment_82178457

Re Deferring my state pension - I looked at say 4 years until my remaining £50k DC pot was empty but took an awful lot of years drawing the extra state pension to breakeven versus the 4 missed years.

It is based approximately on you living to an average age, which for someone in their 60's is around 85. So if you live longer you gain and for shorter you lose.