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    • Tayloriw1
    • By Tayloriw1 13th Jul 18, 7:11 PM
    • 15Posts
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    Tayloriw1
    Pension 25% free
    • #1
    • 13th Jul 18, 7:11 PM
    Pension 25% free 13th Jul 18 at 7:11 PM
    hello I will be retiring in 2020, at 55
    I have a work pension i can draw at 60, but currently earn 50k a year is it rightthat i can pay say 36k now into a private pension and recieve a 25% boost from the government straight away, and then at 55 take a lump sum tax free out ( not sure how much would be tax free as i wont then be on any income ? )
    if this is right, could i then take another lump out the following year free of tax too ? and so on ?
    hope that makes sense and thanks in advance for any advice
Page 1
    • dunstonh
    • By dunstonh 13th Jul 18, 8:02 PM
    • 93,379 Posts
    • 60,884 Thanks
    dunstonh
    • #2
    • 13th Jul 18, 8:02 PM
    • #2
    • 13th Jul 18, 8:02 PM
    s it rightthat i can pay say 36k now into a private pension and recieve a 25% boost from the government straight away
    No. You get 20% tax relief at source and any additional higher rate relief will be handled via your tax code.

    and then at 55 take a lump sum tax free out ( not sure how much would be tax free as i wont then be on any income ? )
    Personal allowance can be used up without paying tax and you have the 25% tax free lump sum.

    if this is right, could i then take another lump out the following year free of tax too ? and so on ?
    If you take the 25% tax free lump sum at the start, it will not be available to use again. You can phase it though.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • xylophone
    • By xylophone 13th Jul 18, 8:48 PM
    • 25,762 Posts
    • 15,221 Thanks
    xylophone
    • #3
    • 13th Jul 18, 8:48 PM
    • #3
    • 13th Jul 18, 8:48 PM
    You are currently contributing to an occupational pension and will do so until you retire from this job in 2020 at age 55?

    You will leave this pension deferred until you can draw it at age 60?

    You are proposing opening a SIPP to run alongside your occupational pension?

    You will contribute as much as possible to the personal pension over this and the next tax year in order to take advantage of tax relief while you still have relevant earnings?



    https://www.gov.uk/tax-on-your-private-pension

    https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/the-annual-allowance

    You will draw down the personal pension between age 55 and 60?

    http://www.hl.co.uk/pensions/drawdown may be worth a look.
    Last edited by xylophone; 13-07-2018 at 8:55 PM. Reason: add bold
    • Tayloriw1
    • By Tayloriw1 13th Jul 18, 9:18 PM
    • 15 Posts
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    Tayloriw1
    • #4
    • 13th Jul 18, 9:18 PM
    • #4
    • 13th Jul 18, 9:18 PM
    thanks ,, so for example
    when im 55 i would like to take out 15k from it, 25% is tax free and the rest would be as my income that year so i wouldnt pay any tax on it ?
    Then i could do the same the following year could i ?
    • AnotherJoe
    • By AnotherJoe 13th Jul 18, 9:22 PM
    • 9,826 Posts
    • 10,970 Thanks
    AnotherJoe
    • #5
    • 13th Jul 18, 9:22 PM
    • #5
    • 13th Jul 18, 9:22 PM
    Year one, where that is a tax year, you can take out 25% of whats in there, plus your personal tax allowance, around 12k, assuming you are not earning any other money in that tax year.

    Year two you can take out your personal tax allowance without paying tax.
    etc until its gone.
    • DairyQueen
    • By DairyQueen 14th Jul 18, 7:20 AM
    • 332 Posts
    • 497 Thanks
    DairyQueen
    • #6
    • 14th Jul 18, 7:20 AM
    • #6
    • 14th Jul 18, 7:20 AM
    thanks ,, so for example
    when im 55 i would like to take out 15k from it, 25% is tax free and the rest would be as my income that year so i wouldnt pay any tax on it ?
    Then i could do the same the following year could i ?
    Originally posted by Tayloriw1
    Yes, you can do this. This kind of drawdown is referred to as 'UFPLS' (Uncrystallised Funds Pension Lump Sum). You only 'crystallise' the amount that you are withdrawing from your pension pot. The balance of the pot remains 'uncrystallised'. I would recommend that you research what 'crystallisation' means.

    Note that UFPLS triggers the MPAA (Money Purchase Annual Allowance), currently 4000. Once you take a single penny of your pension pot considered income for tax purposes then the MPAA kicks-in and this will be the maximum you will be able to contribute annually to any pension from then onward, regardless of income/earnings.

    This is a good way to use any unused personal allowance if you are over 55 and have little/zero income to set against your tax allowance before (say) you receive the SP, or DB schemes begin paying.

    Of your 15k withdrawal 25% (3750) would be tax free. The balance (11250) would also be tax free assuming that you have no other taxable income as it is under the current 11850 PA.

    Note that there is an administrative hurdle to this kind of drawdown. The pension holder will not have a tax code when you make the withdrawal and they will therefore tax you on an emergency basis. This assumes that you will be withdrawing your 15k every month for the remainder of the tax year and you will be hammered by tax. You therefore need to request a tax rebate immediately from HMRC.
    • shilts
    • By shilts 14th Jul 18, 9:08 AM
    • 66 Posts
    • 3 Thanks
    shilts
    • #7
    • 14th Jul 18, 9:08 AM
    • #7
    • 14th Jul 18, 9:08 AM
    Dairyqueen, you note this administrive hurdle . Does it have an effect depending on the timing of this withdrawal ? For example , if you took it during the last month of the tax year would this avoid an emergency tax code being applied , thanks ?
    • Dazed and confused
    • By Dazed and confused 14th Jul 18, 9:13 AM
    • 2,701 Posts
    • 1,307 Thanks
    Dazed and confused
    • #8
    • 14th Jul 18, 9:13 AM
    • #8
    • 14th Jul 18, 9:13 AM
    The emergency tax code would always be used on the first payment, irrespective of when in the tax year it was.

    This is only ever a (short term) problem with larger payments. If the intention is to stay within the Personal Allowance and the taxable income is taken on a regular basis then no tax would be deducted as the "emergency" tax code only results in tax being deducted from amounts greater than 988 (per month).
    • squirrelpie
    • By squirrelpie 14th Jul 18, 1:36 PM
    • 35 Posts
    • 10 Thanks
    squirrelpie
    • #9
    • 14th Jul 18, 1:36 PM
    • #9
    • 14th Jul 18, 1:36 PM
    Dairyqueen, you note this administrive hurdle . Does it have an effect depending on the timing of this withdrawal ? For example , if you took it during the last month of the tax year would this avoid an emergency tax code being applied , thanks ?
    No, the emergency code is applied as if it was the first month of the year you took the money out. So it assumes you will take twelve times the amount and taxes you on that basis. If it's actually the last month, then they will eventually repay you the tax. The system is broken but works to the taxman's advantage so they refuse to fix it.
    • shilts
    • By shilts 14th Jul 18, 3:43 PM
    • 66 Posts
    • 3 Thanks
    shilts
    Thanks Dazed and confused and Squirrelpie . So I guess then that there isn!!!8217;t a way of avoiding paying emergency tax . When you reclaim it is it a straightforward process and approx how long would it take , thanks ?
    • DairyQueen
    • By DairyQueen 14th Jul 18, 7:03 PM
    • 332 Posts
    • 497 Thanks
    DairyQueen
    It's straightforward to reclaim and a reasonable timescale (weeks). However, there is a sneaky workaround. If you make two withdrawals each year, and the first is for only 100 then the emergency code will only be applied to this 100 quid. This withdrawal will trigger the issuing of a tax code from HMRC. The second withdrawal (14900) will be taxed at the correct rate. Thus you only need to reclaim a small amount of tax on the first withdrawal.
    • Dazed and confused
    • By Dazed and confused 14th Jul 18, 7:30 PM
    • 2,701 Posts
    • 1,307 Thanks
    Dazed and confused
    There are two issues with this,

    1). No tax would be deducted from 100 - the emergency tax code only results in tax being deducted when monthly payment, which most pensions discussed on these boards tend to be, is over 988.

    2). The whole point of the correct tax code being issued is that it would enable the pension company to refund any excess tax deducted when they make a further payment. There would be no need to contact HMRC.
    • DairyQueen
    • By DairyQueen 15th Jul 18, 9:38 AM
    • 332 Posts
    • 497 Thanks
    DairyQueen
    Thanks for the correction. I am trying the workaround this tax year and, of course, no tax due on 100.
    • shilts
    • By shilts 15th Jul 18, 3:52 PM
    • 66 Posts
    • 3 Thanks
    shilts
    Thanks for everyone!!!8217;s help . I!!!8217;ve a fair way to go before retirement but I!!!8217;m planning and trying to learn as much as I can , thanks again !!!55357;!!!56397;
    • Bravepants
    • By Bravepants 15th Jul 18, 6:52 PM
    • 411 Posts
    • 452 Thanks
    Bravepants
    Sorry to barge into the thread, but I hope to be in a similar situation to the OP in 5 years time...
    Rather than take the 25% lump sum could I take 1316.66 per month (at current tax allowance and tax free rates that's 15800 per annum).



    Would the pension company inform HMRC that 25% of the monthly amount is tax free, and so not issue an emergency code for being over 988?


    Cheers.
    • AnotherJoe
    • By AnotherJoe 15th Jul 18, 6:54 PM
    • 9,826 Posts
    • 10,970 Thanks
    AnotherJoe
    Sorry to barge into the thread, but I hope to be in a similar situation to the OP in 5 years time...
    Rather than take the 25% lump sum could I take 1316.66 per month (at current tax allowance and tax free rates that's 15800 per annum).
    Would the pension company inform HMRC that 25% of the monthly amount is tax free, and so not issue an emergency code for being over 988?
    Cheers.
    Originally posted by Bravepants

    They should.
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