Quick pension question, relating to the 25% tax free.
my wife will be 55 in a couple of years so can access her SIPP (she also has a couple of DB pensions, coming out at 60 & 67 currently but park that for now).
let’s say at that point it’s £200k, she can draw £50k tax free leaving £150k invested.
lets fast forward 5 years after that and say her pot is now £200k again, can she take a further £12.5k tax free (ie 25% of the £50k growth?).
No, she can't. If you take the 25% lump sum at the start that's that, the rest is taxable. If your wife had zero subsequent income she could make a taxable withdrawal of £12,570pa which although taxable, no tax would be payable.
If you do take lesser withdrawals plus 25% tax free you can do that ad infinitum. IE I started withdrawing £12,570 + 25% tax free, total £16,000 odd for a few years.
But last year when the risk of losing the 25% tax free lump sum was mooted, I then withdrew 25% tax free of the total sum.
Quick pension question, relating to the 25% tax free.
my wife will be 55 in a couple of years so can access her SIPP (she also has a couple of DB pensions, coming out at 60 & 67 currently but park that for now).
let’s say at that point it’s £200k, she can draw £50k tax free leaving £150k invested.
lets fast forward 5 years after that and say her pot is now £200k again, can she take a further £12.5k tax free (ie 25% of the £50k growth?).
Regrettably, no. The 25% tax free is based on the pot at the time the pension is first accessed - no additional 25% tax free withdrawals if the pot subsequently increases in value.
Quick pension question, relating to the 25% tax free.
my wife will be 55 in a couple of years so can access her SIPP (she also has a couple of DB pensions, coming out at 60 & 67 currently but park that for now).
let’s say at that point it’s £200k, she can draw £50k tax free leaving £150k invested.
lets fast forward 5 years after that and say her pot is now £200k again, can she take a further £12.5k tax free (ie 25% of the £50k growth?).
Regrettably, no. The 25% tax free is based on the pot at the time the pension is first accessed - no additional 25% tax free withdrawals if the pot subsequently increases in value.
Thanks, that’s what I had thought but couldn’t find a definite answer.
Quick pension question, relating to the 25% tax free.
my wife will be 55 in a couple of years so can access her SIPP (she also has a couple of DB pensions, coming out at 60 & 67 currently but park that for now).
let’s say at that point it’s £200k, she can draw £50k tax free leaving £150k invested.
lets fast forward 5 years after that and say her pot is now £200k again, can she take a further £12.5k tax free (ie 25% of the £50k growth?).
No, she can't. If you take the 25% lump sum at the start that's that, the rest is taxable. If your wife had zero subsequent income she could make a taxable withdrawal of £12,570pa which although taxable, no tax would be payable.
If you do take lesser withdrawals plus 25% tax free you can do that ad infinitum. IE I started withdrawing £12,570 + 25% tax free, total £16,000 odd for a few years.
But last year when the risk of losing the 25% tax free lump sum was mooted, I then withdrew 25% tax free of the total sum.
That’s partly my thought, get the full 25% out as soon as you can!!
Quick pension question, relating to the 25% tax free.
my wife will be 55 in a couple of years so can access her SIPP (she also has a couple of DB pensions, coming out at 60 & 67 currently but park that for now).
let’s say at that point it’s £200k, she can draw £50k tax free leaving £150k invested.
lets fast forward 5 years after that and say her pot is now £200k again, can she take a further £12.5k tax free (ie 25% of the £50k growth?).
No, she can't. If you take the 25% lump sum at the start that's that, the rest is taxable. If your wife had zero subsequent income she could make a taxable withdrawal of £12,570pa which although taxable, no tax would be payable.
If you do take lesser withdrawals plus 25% tax free you can do that ad infinitum. IE I started withdrawing £12,570 + 25% tax free, total £16,000 odd for a few years.
But last year when the risk of losing the 25% tax free lump sum was mooted, I then withdrew 25% tax free of the total sum.
That’s partly my thought, get the full 25% out as soon as you can!!
Advisers are hauled over the coals by the FCA for advising this strategy unless there is a good reason for it (paying off a mortgage for example). Worse thing you can do (and I've seen clients do it) is to take the 25% lump sum & then just leave it in a deposit account where the interest is taxable. Even citing "Labour might tax it on future / reduce the amount of TFC allowed" is not good enough......I cant give advice on rumour or hearsay.
If you ARE going to take out TFC at least put it somewhere tax efficient. Problem is the main one (ISA) has a meagre £20k annual limit. Next best thing would be an Investment Bond. You cant really look at pensions as you'd probably fall foul of the recycling rules.
Quick pension question, relating to the 25% tax free.
my wife will be 55 in a couple of years so can access her SIPP (she also has a couple of DB pensions, coming out at 60 & 67 currently but park that for now).
let’s say at that point it’s £200k, she can draw £50k tax free leaving £150k invested.
lets fast forward 5 years after that and say her pot is now £200k again, can she take a further £12.5k tax free (ie 25% of the £50k growth?).
No, she can't. If you take the 25% lump sum at the start that's that, the rest is taxable. If your wife had zero subsequent income she could make a taxable withdrawal of £12,570pa which although taxable, no tax would be payable.
If you do take lesser withdrawals plus 25% tax free you can do that ad infinitum. IE I started withdrawing £12,570 + 25% tax free, total £16,000 odd for a few years.
But last year when the risk of losing the 25% tax free lump sum was mooted, I then withdrew 25% tax free of the total sum.
That’s partly my thought, get the full 25% out as soon as you can!!
Advisers are hauled over the coals by the FCA for advising this strategy unless there is a good reason for it (paying off a mortgage for example). Worse thing you can do (and I've seen clients do it) is to take the 25% lump sum & then just leave it in a deposit account where the interest is taxable. Even citing "Labour might tax it on future / reduce the amount of TFC allowed" is not good enough......I cant give advice on rumour or hearsay.
If you ARE going to take out TFC at least put it somewhere tax efficient. Problem is the main one (ISA) has a meagre £20k annual limit. Next best thing would be an Investment Bond. You cant really look at pensions as you'd probably fall foul of the recycling rules.
Taking the 25% doesn’t stop further payments into pension (DC). At least that’s what I read….. not that a lot goes into her SIPP anyway as a low earner. But let me know if I’ve read that incorrectly!
it won’t be a huge sum (£50k max) and believe me it won’t live in any account for long 😂 she has plans 🙈 wants a place in Lanzarote…..
Until the recent rule change my plan was to leave as much as possible in my SIPP and drain other resources first, that’s changed now thanks to the Chancellor so I’ll be drawing and spending it and leaving the kids the gold and her premium bonds instead 😂
Quick pension question, relating to the 25% tax free.
my wife will be 55 in a couple of years so can access her SIPP (she also has a couple of DB pensions, coming out at 60 & 67 currently but park that for now).
let’s say at that point it’s £200k, she can draw £50k tax free leaving £150k invested.
lets fast forward 5 years after that and say her pot is now £200k again, can she take a further £12.5k tax free (ie 25% of the £50k growth?).
Regrettably, no. The 25% tax free is based on the pot at the time the pension is first accessed - no additional 25% tax free withdrawals if the pot subsequently increases in value.
Yes, although I think you ought be clear here. The way I understand it is this as an eaxample. If the pot is £200k and you want to draw down £25k the way it works is that the £25k is 25% of £100k. So although you have £175k left, it counts as £75K crystalised and £100k uncrystalised. If the £175k became £350k (keeping the maths simple), you have £150k crystalised and £200k uncrystalised. You then have 25% of the £200k uncrystalised pot available as tax free ie £50k and not £25k of the original pot. Hopefully Golfie will confirm this.
Quick pension question, relating to the 25% tax free.
my wife will be 55 in a couple of years so can access her SIPP (she also has a couple of DB pensions, coming out at 60 & 67 currently but park that for now).
let’s say at that point it’s £200k, she can draw £50k tax free leaving £150k invested.
lets fast forward 5 years after that and say her pot is now £200k again, can she take a further £12.5k tax free (ie 25% of the £50k growth?).
Regrettably, no. The 25% tax free is based on the pot at the time the pension is first accessed - no additional 25% tax free withdrawals if the pot subsequently increases in value.
Yes, although I think you ought be clear here. The way I understand it is this as an eaxample. If the pot is £200k and you want to draw down £25k the way it works is that the £25k is 25% of £100k. So although you have £175k left, it counts as £75K crystalised and £100k uncrystalised. If the £175k became £350k (keeping the maths simple), you have £150k crystalised and £200k uncrystalised. You then have 25% of the £200k uncrystalised pot available as tax free ie £50k and not £25k of the original pot. Hopefully Golfie will confirm this.
You are no doubt correct - I was responding to R7L's question where he mentions taking the full 25% of the pot.
Quick pension question, relating to the 25% tax free.
my wife will be 55 in a couple of years so can access her SIPP (she also has a couple of DB pensions, coming out at 60 & 67 currently but park that for now).
let’s say at that point it’s £200k, she can draw £50k tax free leaving £150k invested.
lets fast forward 5 years after that and say her pot is now £200k again, can she take a further £12.5k tax free (ie 25% of the £50k growth?).
Regrettably, no. The 25% tax free is based on the pot at the time the pension is first accessed - no additional 25% tax free withdrawals if the pot subsequently increases in value.
Yes, although I think you ought be clear here. The way I understand it is this as an eaxample. If the pot is £200k and you want to draw down £25k the way it works is that the £25k is 25% of £100k. So although you have £175k left, it counts as £75K crystalised and £100k uncrystalised. If the £175k became £350k (keeping the maths simple), you have £150k crystalised and £200k uncrystalised. You then have 25% of the £200k uncrystalised pot available as tax free ie £50k and not £25k of the original pot. Hopefully Golfie will confirm this.
That’s how it’s worked for me so yes you are correct.
Quick pension question, relating to the 25% tax free.
my wife will be 55 in a couple of years so can access her SIPP (she also has a couple of DB pensions, coming out at 60 & 67 currently but park that for now).
let’s say at that point it’s £200k, she can draw £50k tax free leaving £150k invested.
lets fast forward 5 years after that and say her pot is now £200k again, can she take a further £12.5k tax free (ie 25% of the £50k growth?).
Regrettably, no. The 25% tax free is based on the pot at the time the pension is first accessed - no additional 25% tax free withdrawals if the pot subsequently increases in value.
Yes, although I think you ought be clear here. The way I understand it is this as an eaxample. If the pot is £200k and you want to draw down £25k the way it works is that the £25k is 25% of £100k. So although you have £175k left, it counts as £75K crystalised and £100k uncrystalised. If the £175k became £350k (keeping the maths simple), you have £150k crystalised and £200k uncrystalised. You then have 25% of the £200k uncrystalised pot available as tax free ie £50k and not £25k of the original pot. Hopefully Golfie will confirm this.
Quick pension question, relating to the 25% tax free.
my wife will be 55 in a couple of years so can access her SIPP (she also has a couple of DB pensions, coming out at 60 & 67 currently but park that for now).
let’s say at that point it’s £200k, she can draw £50k tax free leaving £150k invested.
lets fast forward 5 years after that and say her pot is now £200k again, can she take a further £12.5k tax free (ie 25% of the £50k growth?).
No, she can't. If you take the 25% lump sum at the start that's that, the rest is taxable. If your wife had zero subsequent income she could make a taxable withdrawal of £12,570pa which although taxable, no tax would be payable.
If you do take lesser withdrawals plus 25% tax free you can do that ad infinitum. IE I started withdrawing £12,570 + 25% tax free, total £16,000 odd for a few years.
But last year when the risk of losing the 25% tax free lump sum was mooted, I then withdrew 25% tax free of the total sum.
That’s partly my thought, get the full 25% out as soon as you can!!
Advisers are hauled over the coals by the FCA for advising this strategy unless there is a good reason for it (paying off a mortgage for example). Worse thing you can do (and I've seen clients do it) is to take the 25% lump sum & then just leave it in a deposit account where the interest is taxable. Even citing "Labour might tax it on future / reduce the amount of TFC allowed" is not good enough......I cant give advice on rumour or hearsay.
If you ARE going to take out TFC at least put it somewhere tax efficient. Problem is the main one (ISA) has a meagre £20k annual limit. Next best thing would be an Investment Bond. You cant really look at pensions as you'd probably fall foul of the recycling rules.
Taking the 25% doesn’t stop further payments into pension (DC). At least that’s what I read….. not that a lot goes into her SIPP anyway as a low earner. But let me know if I’ve read that incorrectly!
it won’t be a huge sum (£50k max) and believe me it won’t live in any account for long 😂 she has plans 🙈 wants a place in Lanzarote…..
Until the recent rule change my plan was to leave as much as possible in my SIPP and drain other resources first, that’s changed now thanks to the Chancellor so I’ll be drawing and spending it and leaving the kids the gold and her premium bonds instead 😂
1st world problems I know……
There is a difference between funding a pension via regular premiums and funding it by a lump sum recently acquired by way of the 25% TFC.
The recycling rules are down to HMRC interpretation as (and my memory might let me down here) it all depends on how you have previously funded your pension. If you can show that you have previously contributed lump sums into your pension you may get away with it. If all you've done is paid £300pm for the past 10 years you'll probably not get away with sticking in £20k now as a one off payment.
On a different note (and maybe what you were alluding to) you are not affected by the MPAA (max £10k) if you are only taking TFC. Once you start taking "taxable" income then you are limited to how much you can pay into a pension.
Quick pension question, relating to the 25% tax free.
my wife will be 55 in a couple of years so can access her SIPP (she also has a couple of DB pensions, coming out at 60 & 67 currently but park that for now).
let’s say at that point it’s £200k, she can draw £50k tax free leaving £150k invested.
lets fast forward 5 years after that and say her pot is now £200k again, can she take a further £12.5k tax free (ie 25% of the £50k growth?).
Regrettably, no. The 25% tax free is based on the pot at the time the pension is first accessed - no additional 25% tax free withdrawals if the pot subsequently increases in value.
Yes, although I think you ought be clear here. The way I understand it is this as an eaxample. If the pot is £200k and you want to draw down £25k the way it works is that the £25k is 25% of £100k. So although you have £175k left, it counts as £75K crystalised and £100k uncrystalised. If the £175k became £350k (keeping the maths simple), you have £150k crystalised and £200k uncrystalised. You then have 25% of the £200k uncrystalised pot available as tax free ie £50k and not £25k of the original pot. Hopefully Golfie will confirm this.
Quick pension question, relating to the 25% tax free.
my wife will be 55 in a couple of years so can access her SIPP (she also has a couple of DB pensions, coming out at 60 & 67 currently but park that for now).
let’s say at that point it’s £200k, she can draw £50k tax free leaving £150k invested.
lets fast forward 5 years after that and say her pot is now £200k again, can she take a further £12.5k tax free (ie 25% of the £50k growth?).
No, she can't. If you take the 25% lump sum at the start that's that, the rest is taxable. If your wife had zero subsequent income she could make a taxable withdrawal of £12,570pa which although taxable, no tax would be payable.
If you do take lesser withdrawals plus 25% tax free you can do that ad infinitum. IE I started withdrawing £12,570 + 25% tax free, total £16,000 odd for a few years.
But last year when the risk of losing the 25% tax free lump sum was mooted, I then withdrew 25% tax free of the total sum.
That’s partly my thought, get the full 25% out as soon as you can!!
Advisers are hauled over the coals by the FCA for advising this strategy unless there is a good reason for it (paying off a mortgage for example). Worse thing you can do (and I've seen clients do it) is to take the 25% lump sum & then just leave it in a deposit account where the interest is taxable. Even citing "Labour might tax it on future / reduce the amount of TFC allowed" is not good enough......I cant give advice on rumour or hearsay.
If you ARE going to take out TFC at least put it somewhere tax efficient. Problem is the main one (ISA) has a meagre £20k annual limit. Next best thing would be an Investment Bond. You cant really look at pensions as you'd probably fall foul of the recycling rules.
Taking the 25% doesn’t stop further payments into pension (DC). At least that’s what I read….. not that a lot goes into her SIPP anyway as a low earner. But let me know if I’ve read that incorrectly!
it won’t be a huge sum (£50k max) and believe me it won’t live in any account for long 😂 she has plans 🙈 wants a place in Lanzarote…..
Until the recent rule change my plan was to leave as much as possible in my SIPP and drain other resources first, that’s changed now thanks to the Chancellor so I’ll be drawing and spending it and leaving the kids the gold and her premium bonds instead 😂
1st world problems I know……
There is a difference between funding a pension via regular premiums and funding it by a lump sum recently acquired by way of the 25% TFC.
The recycling rules are down to HMRC interpretation as (and my memory might let me down here) it all depends on how you have previously funded your pension. If you can show that you have previously contributed lump sums into your pension you may get away with it. If all you've done is paid £300pm for the past 10 years you'll probably not get away with sticking in £20k now as a one off payment.
On a different note (and maybe what you were alluding to) you are not affected by the MPAA (max £10k) if you are only taking TFC. Once you start taking "taxable" income then you are limited to how much you can pay into a pension.
Agreed,
I was thinking more of every month for about the last 8 years my wife has paid £300 into her SIPP (plus the odd extra £1 or £2k every so often). If in a couple of years she is still working but takes her 25% she could continue putting in the £300 a month (or probably even if she wasn't working).
The 25% is a tricky decision but we decided to take our pensions as early as possible, use the 25% to buy property and have guarenteed annuity income before some super rich smart arse in government changes the rules. For example, upping the age for the OAP / changing allowances etc. Wanted our finances in our hands not at the whim of some muppet, get it wrong and it's down to us, so be it.
Quick pension question, relating to the 25% tax free.
my wife will be 55 in a couple of years so can access her SIPP (she also has a couple of DB pensions, coming out at 60 & 67 currently but park that for now).
let’s say at that point it’s £200k, she can draw £50k tax free leaving £150k invested.
lets fast forward 5 years after that and say her pot is now £200k again, can she take a further £12.5k tax free (ie 25% of the £50k growth?).
Regrettably, no. The 25% tax free is based on the pot at the time the pension is first accessed - no additional 25% tax free withdrawals if the pot subsequently increases in value.
Yes, although I think you ought be clear here. The way I understand it is this as an eaxample. If the pot is £200k and you want to draw down £25k the way it works is that the £25k is 25% of £100k. So although you have £175k left, it counts as £75K crystalised and £100k uncrystalised. If the £175k became £350k (keeping the maths simple), you have £150k crystalised and £200k uncrystalised. You then have 25% of the £200k uncrystalised pot available as tax free ie £50k and not £25k of the original pot. Hopefully Golfie will confirm this.
Thanks, between here and a few other places I've pieced it together as thus (I probably also didn't ask quite the right question!):
SIPP Pot (let's use the example of £200k) Take 25% (50k) and the remaining £150k (75%) moves into a crystallised 'section' and no further 25% (even if growth) is claimable - basically what others have said here.
HOWEVER...... were my wife continue to pay into her pension, then that still accrues in an uncrystalised 'pot', contributions and any growth on those - at any point 25% of said pot can be taken tax free (and so the cycle continues). Of course subject to the overall limit of the just over £268k.
This is interesting for me, being able to withdraw 25% and then continue to contribute and take a further 25% on those new contributions and their growth (noted Golfie's comments on recycling). That'll probably suit my wife's pension arrangements (no where near enough to max out the £268k).
The more I think about it, especially with the new IHT rules coming in, I'm getting my 25% out as soon as I hit the age barrier.
Comments
If you take the 25% lump sum at the start that's that, the rest is taxable.
If your wife had zero subsequent income she could make a taxable withdrawal of £12,570pa which although taxable, no tax would be payable.
If you do take lesser withdrawals plus 25% tax free you can do that ad infinitum.
IE I started withdrawing £12,570 + 25% tax free, total £16,000 odd for a few years.
But last year when the risk of losing the 25% tax free lump sum was mooted, I then withdrew 25% tax free of the total sum.
Regrettably, no. The 25% tax free is based on the pot at the time the pension is first accessed - no additional 25% tax free withdrawals if the pot subsequently increases in value.
If you ARE going to take out TFC at least put it somewhere tax efficient. Problem is the main one (ISA) has a meagre £20k annual limit. Next best thing would be an Investment Bond. You cant really look at pensions as you'd probably fall foul of the recycling rules.
it won’t be a huge sum (£50k max) and believe me it won’t live in any account for long 😂 she has plans 🙈 wants a place in Lanzarote…..
Until the recent rule change my plan was to leave as much as possible in my SIPP and drain other resources first, that’s changed now thanks to the Chancellor so I’ll be drawing and spending it and leaving the kids the gold and her premium bonds instead 😂
1st world problems I know……
Hopefully Golfie will confirm this.
You are no doubt correct - I was responding to R7L's question where he mentions taking the full 25% of the pot.
The recycling rules are down to HMRC interpretation as (and my memory might let me down here) it all depends on how you have previously funded your pension. If you can show that you have previously contributed lump sums into your pension you may get away with it. If all you've done is paid £300pm for the past 10 years you'll probably not get away with sticking in £20k now as a one off payment.
On a different note (and maybe what you were alluding to) you are not affected by the MPAA (max £10k) if you are only taking TFC. Once you start taking "taxable" income then you are limited to how much you can pay into a pension.
I was thinking more of every month for about the last 8 years my wife has paid £300 into her SIPP (plus the odd extra £1 or £2k every so often). If in a couple of years she is still working but takes her 25% she could continue putting in the £300 a month (or probably even if she wasn't working).
SIPP Pot (let's use the example of £200k)
Take 25% (50k) and the remaining £150k (75%) moves into a crystallised 'section' and no further 25% (even if growth) is claimable - basically what others have said here.
HOWEVER...... were my wife continue to pay into her pension, then that still accrues in an uncrystalised 'pot', contributions and any growth on those - at any point 25% of said pot can be taken tax free (and so the cycle continues). Of course subject to the overall limit of the just over £268k.
This is interesting for me, being able to withdraw 25% and then continue to contribute and take a further 25% on those new contributions and their growth (noted Golfie's comments on recycling). That'll probably suit my wife's pension arrangements (no where near enough to max out the £268k).
The more I think about it, especially with the new IHT rules coming in, I'm getting my 25% out as soon as I hit the age barrier.