Tax free lump sum - is there a better way?

Skinnydad wrote: »

If you have a SIPP of 400K you can take 100K tax free (25%)

Is there a more cost-effective method of taking this money. i.e. could you take (say) 2K per month for 4 years tax free?Does this make sense as you would already have the 100K in the bank for instant access to 2K per month for approx. 4 years.With interest rates the way they are you’d not make a great deal.

Is there method in my madness, I was thinking that by only taking the 2K from your fund each month you would have a greater sum invested with the potential of earning a greater return on the larger pot. Possibly by the end of 4 years you would have more than the 300K in your fund or is my thinking skewed.

Any comments appreciated.. thank you.

Your thinking is skewed.
1. The £100k could be invested same as it was inside the SIPP. You just assumed it would be held as cash.
2. "By the end of 4 years you might have less than the £300k" in your fund. I've got about 10% less in mine since the start of the year. depends what teh markets can do.
3. depends on your personal circumstances, what other money you have, what cash buffer, what ISA contributions you can make, and so on.

If you have a SIPP of 400K you can take 100K tax free (25%)

Just because you can, doesn't mean you should.

Is there a more cost-effective method of taking this money. i.e. could you take (say) 2K per month for 4 years tax free?

There are multiple methods.

Does this make sense as you would already have the 100K in the bank for instant access to 2K per month for approx. 4 years.With interest rates the way they are you!!!8217;d not make a great deal.

If you don't need the money, then why take it out at all at this stage?

What you do should match your objectives and needs, requirements and tax position.

and some of my pensions are coming in and I'm just trying to decide what's the best options that's all.

Whilst some pensions have a fixed scheme age, others (such as most money purchase schemes) have no fixed date and you dont have to take them. If you dont need the money, then leave them invested.

My OH thinks it's always better to take the money and at least if the a** falls out of the fund you'll at least have that block of money.

Equally, if you take the money out, you miss out on the growth that occurs (growth periods outnumber negative periods).

Plus I think she's quite worried that the government will stop the 25% tax free portion.

Despite the 25% TFC being introduced 30 years ago and not being reduced once since. And all the times since then that the Govt have reviewed the tax free cash, they have actually increased its availability. (such as SERPS/S2p contracted out plans getting 25% TFC when they didnt have any before)

Plus, the tax-free cash stimulates the economy. Taking it away would damage the economy.

Also, as tax benefits go, it is the least tax hit to the treasury of all the tax free benefits of pensions. Salary sacrifice now costs more. Tax relief towers over all other things.

It has never made any consultation paper or Govt source that there is even a hint of TFC going away.

Skinnydad wrote: »

Thanks to all I'll need to re-think this and yes my apologies re skewed thinking. I didn't realise the differences in the 25% tax free element. 60 this year and some of my pensions are coming in and I'm just trying to decide what's the best options that's all. I understand that the value of the pension can fluctuate depending on the current market situation. My OH thinks it's always better to take the money and at least if the a** falls out of the fund you'll at least have that block of money. Plus I think she's quite worried that the government will stop the 25% tax free portion. as I said let me get my head around this and get back in touch. Thanks again to all who contributed..

If you(or your wife) think you know what the markets will do you can also just sell 25% of the fund and leave it as cash inside the SIPP. Or indeed more than 25%. You could sell all the investments and leave them as cash.

Statistically that would not be a good thing to do but there might be reasons for putting some or all in cash.

You dont need to take it out apart from the somewhat paranoid thought that the 25% TFLS will be abolished, which seems incredibly unlikely. Many other things are far more likely if govt wants to [STRIKE]raid[/STRIKE] raise more money in a way that will annoy fewer [STRIKE]people[/STRIKE] voters such as abolishing or amending high rate tax relief for example.