UFPLS Help please

moomi

Hi, we are 55 and 56 currently and planning to retire at 60. We are looking at needing £36000 a year and had been looking at using UFPLS. Our plan was to take approximately £16000 each from DC pensions using UFPLS, the first 25% of that is tax free and the rest falls within your taxable allowance, then top up from savings. Is that how it would work as I’m looking at so much advice online that I have confused myself now! Thanks for reading. 😊

eskbanker

Yes, if you have no other taxable income then taking UFPLS payments of £16,760 uses up all of your personal tax allowance, so there eventually wouldn't be any income tax liability from those, although there would initially be PAYE tax deducted by the provider, which would ultimately need to be refunded by HMRC.

Dazed_and_C0nfused

And £17,382 is the new £16,760 if you were State Pension age, had deferred your State Pension and didn't have any other taxable income in the same tax year 😉

kempiejon

 £17,382 is the new £16,760

I had to check if one gets the enhanced entitlement* if in deferrement and hence not claiming the benefit.

I like those sums for the relevant people and more grist to the defer state pensions slight advantage mill for those looking to minimise taxes paid. Is this an indicator of personal allowance being indexed for those ove state pension age.

https://www.gov.uk/government/publications/pension-tax-allowance-explainer/pension-tax-allowance-explainer

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/82188480#Comment_82188480

I think you have completely misunderstood the new Pension Tax Allowance. There has been no change to the Personal Allowance.

But once you are State Pension age you can, if your taxable income is low enough, benefit from a new tax reducer, confusingly called an allowance.

If your taxable income is only from pensions or earnings, is £13,036.50 (75% of £17,382) and you haven't applied for Marriage Allowance then you will get the reducer in full, leaving you with no tax to pay.

eskbanker

Marriage allowance also being a tax reducer in much the same way!

Triumph13

Leaving aside the issue of the pension tax allowance, for the years until your SP starts you would get your £36,000 if you each did an UFPLS of £18,219 each year. 25% would be tax free, as would £12,570 of the remainder. 20% tax on the rest would be £219.

Assuming you have enough in your pensions, there's no point trying to exactly judge your withdrawals to avoid all tax in this period, because you'll be paying the tax sooner or later once your SPs start. All that matters is making sure you use your full PA, whilst avoiding HRT.

moomi

Thats £219 tax for the year based on the take out amount? Much less than i thought so thats really helpful as i would prefer to hold onto the cash savings. Thank you!

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/82188533#Comment_82188533

May well not be an issue but it would mean you have each used £1,094 of the basic rate band, dropping the available savings starter rate band to £3,906.

moomi

https://forums.moneysavingexpert.com/discussion/comment/82188540#Comment_82188540

sorry to be ignorant but can you explain what you mean by the available savings starter rate band? Thanks👍🏻

Dazed_and_C0nfused

If you have used all of your Personal Allowance (£11,310 or £12,570) but none of your basic rate band the first £5,000 of savings interest will be taxed at 0%. That's the savings starter rate band.

For each £1 of basic rate band you have used the savings starter rate band is reduced by £1 so for a lot of people it never comes into the equation. But it is very useful for people with low non savings non dividend income like pensions or earnings.

https://www.litrg.org.uk/savings-property/tax-savings-and-investments/tax-savings-income/starting-rate-savings