£780k pot how much would you drawdown each year
Comments
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That's about LTA protection, which I don't think applies to the OP.The statement relating to £1m isn't factually correct, it's close.
Spend is the wrong term, withdraw is the correct term, but still not the correct measure.
LTA is correct, however it is tested at various benefit crystallisation events (bce), in attempting to simplify things for you interpretation errors have occurred, statements made in good faith have then been selected out of context.
This is an area too complex for a forum and you should seek professional advice, use pension Wise's free facility or read and digest this:
https://www.gov.uk/guidance/pension-schemes-value-your-pension-for-lifetime-allowance-protection
I did post up the correct position earlier in this thread but was ignored.
As a tax payer, it's your responsibility to get this right.0 -
No the LTA gets used up (and possibly tax applied) at benefit crystallistion events. See https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm088100I can't believe all this information. Thanks so much jamesd. I don't know what a lot of it means at this stage, but will take it line by line.
Does this mean I actually have to spend a million pounds before I was taxed for exceeding the allowance?
Also, would should my IFA know all this information you have posted? He will be retiring himself in the next five years, maybe sooner. I wonder what his appetite is for coming up with advice of this magnitude, and a plan.
As for westv's comment, I should be the one awake all night.
And yes your IFA should know all about this, if not sack him!0 -
I have a question about keeping below the LTA at the age-75 BCE for DC pensions in a SIPP. There has been a lot of advice in this thread and elsewhere to crystallise early and then regularly remove amounts from the drawdown fund to stop it going above the LTA ready for the automatic BCE that is triggered on one's 75th birthday. That make sense.
My question is about the tax-free lump sum: at the first crystallisation event, when 25% becomes available tax-free and the rest becomes the drawdown fund, does that 25% become logically (and for tax purposes) quite independent of the SIPP, even if the corresponding funds are left where they are, within the SIPP, with potential investment growth into the future? Or will such growth then be examined at age 75 and included in the LTA calculation?
In other words, to avoid hitting the LTA at age 75, if the PCLS is left in the SIPP is it necessary to remove growth from the PCLS as well as from the drawdown fund? I have googled around but cannot find anything definitive on this. (Maybe the answer is meant to be obvious; but not to me)0 -
does that 25% become logically (and for tax purposes) quite independent of the SIPP, even if the corresponding funds are left where they are, within the SIPP, with potential investment growth into the future?
Correct, it's moved out of the SIPP/Drawdown investment wrapper to wherever you want and it's value remains static for LTA recalculation purposes (even if you bought a Lamborghini with it and it's value goes up dramatically!)0 -
Thanks Fermion. To put my mind at rest can I just pursue a bit further the question of how that would work in practice though? If I had say £800K at the time of first crystallization, invested in a selection of trackers, ITs, open-ended funds etc, is it really true that all the moneys can be left there, undifferentiated between PCLS (initially notionally £200K) and drawdown fund (600K), the SIPP looking identical to how it looked before? To make the arithmetic simpler assume there is no inflation and the LTA remains at 1000K throughout. At this point 80% of the LTA would have been used so 20% remains unused.
Now suppose the whole fund grows at not quite 5% pa and in say 10 years (suppose this is just before age 75) it is worth another 60% ie 1280K. This breaks down (notionally - for the SIPP itself is still undifferentiated) as the PCLS = 320K plus drawdown fund = 960K.
Now the 75th birthday hits and we have second (final?) crystalisation: and the only growth that is taken into account for BCE purposes is that in the drawdown fund viz 960K - 600K = 360K, which is 16% over the 20% of the LTA remaining. So I would need to have removed £160K from the drawdown fund before this to avoid an LTA charge at age 75, BUT NO PART OF THE INCREASED PCLS AMOUNT. Correct?
(Apologies for asking pretty much the exact same question a second time, but I wanted to be sure I have understood it right. I did try looking at the HMRC docs where the answers to this and other questions are meant to be found, but found the wording less than clear. I don't suppose you can point out where this is specified?)
Thanks again anyway.0 -
Correct - one you take your 25% out of your SIPP/Drawdown account you can do what you like with it. If like me, you invest it back in S&S ISAs you ignore any fund growth when recalculating at age 75 - you just use the static 25% figure. It has to be that way, some people use their 25% lump sum to invest in holiday properties etc or to pay off their mortgages, if HMRC insisted that you tracked the growth it would be impossible to value.0
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@fermion I think Gerbert is asking can he leave his PCLS within his SIPP, invested in the same things as the rest of the SIPP and enjoy his returns.
I don't think he can do that, taking the PCLS necessitates taking it out of the SIPP. He can of course re invest it elsewhere, which I think is what you are explaining0 -
@fermion I think Gerbert is asking can he leave his PCLS within his SIPP, invested in the same things as the rest of the SIPP and enjoy his returns.
I don't think he can do that, taking the PCLS necessitates taking it out of the SIPP. He can of course re invest it elsewhere, which I think is what you are explaining
Correct, the PCLS is taken out of the SIPP, it cannot be left within the SIPP wrapper.0 -
Yes, I am asking about leaving the PCLS entirely within the SIPP. The next question was going to be "How, when you take some money from the drawdown fund, does HMRC know that you mean it to come from there and not from the PCLS, given that the drawdown fund and PCLS are all so to speak 'mixed up' in the SIPP?" but NoMore and goRt have now thrown doubt on the idea that that is even possible.
So the alternative answer is that crystallising and taking 25% entails literally removing that 25% entirely from the SIPP. That's a bother.
I am glad I asked the same question twice now. Is everyone on board with that answer? Fermion too?
Thanks again.0 -
Yes, I am asking about leaving the PCLS entirely within the SIPP. The next question was going to be "How, when you take some money from the drawdown fund, does HMRC know that you mean it to come from there and not from the PCLS, given that the drawdown fund and PCLS are all so to speak 'mixed up' in the SIPP?" but NoMore and goRt have now thrown doubt on the idea that that is even possible.
So the alternative answer is that crystallising and taking 25% entails literally removing that 25% entirely from the SIPP. That's a bother.
I am glad I asked the same question twice now. Is everyone on board with that answer? Fermion too?
Thanks again.
That's the way it works, when you take a PCLS it is paid to you by the provider /platform.
What you then do with it is up to you as stated above, with putting it into a S&S ISA, using the same funds as the pension if you want to, as a popular approach.
Limit of £20k per person per tax year so can take a while to get a substantial PCLS moved into S&S ISAs.0
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