simpletons tax and pensions q
Discussion
Hello all, struggling to understand this, maybe someone could explain perhaps with simple maths.
I'm in drawdown, invested with vanguard lifestrategy 60. Up until now I've been drawing income from the taxable portion of my pension up to my personal allowance, any extra required has been taken from savings or the tax free portion.
I'll be in receipt of the state pension later this year which will take up my personal allowance.
Am I better off
a) Continuing drawing income from the taxable portion (keeping below the 40% threshold) therefore taking 20% tax on the chin now?
b) Draw from the tax-free bit deferring paying tax until its exhausted?
c) Or is it as long as its broad?
With my mix of savings/ISAs/pensions, shouldn't ever need to draw so much in one year that I dip into the 40% band.
I have some life limiting medical conditions, expected to pre-decease my partner but anticipate living to over 75. I'm not really interested in annuities at this point.
I'm in drawdown, invested with vanguard lifestrategy 60. Up until now I've been drawing income from the taxable portion of my pension up to my personal allowance, any extra required has been taken from savings or the tax free portion.
I'll be in receipt of the state pension later this year which will take up my personal allowance.
Am I better off
a) Continuing drawing income from the taxable portion (keeping below the 40% threshold) therefore taking 20% tax on the chin now?
b) Draw from the tax-free bit deferring paying tax until its exhausted?
c) Or is it as long as its broad?
With my mix of savings/ISAs/pensions, shouldn't ever need to draw so much in one year that I dip into the 40% band.
I have some life limiting medical conditions, expected to pre-decease my partner but anticipate living to over 75. I'm not really interested in annuities at this point.
Countdown said:
Do you want to maximise the amount that you leave to her whilst minimising the amount you pay in tax?
If so I'd suggest (b) unless her marginal tax rate is 40%
This is one of many questions requiring an answer….. speak to a professional? There are lots of moving parts involved and the answer can often be completely different for two couples with the exact same circumstances.If so I'd suggest (b) unless her marginal tax rate is 40%
Slaav said:
Countdown said:
Do you want to maximise the amount that you leave to her whilst minimising the amount you pay in tax?
If so I'd suggest (b) unless her marginal tax rate is 40%
This is one of many questions requiring an answer….. speak to a professional? There are lots of moving parts involved and the answer can often be completely different for two couples with the exact same circumstances.If so I'd suggest (b) unless her marginal tax rate is 40%
Yes pretty much it.
Slaav,
Just trying to avoid the hoops and complication (for them and me) that advice from IFAs incur. Fed up with them, kissed goodbye to the last one a couple of years ago.
PositronicRay said:
Slaav said:
Countdown said:
Do you want to maximise the amount that you leave to her whilst minimising the amount you pay in tax?
If so I'd suggest (b) unless her marginal tax rate is 40%
This is one of many questions requiring an answer….. speak to a professional? There are lots of moving parts involved and the answer can often be completely different for two couples with the exact same circumstances.If so I'd suggest (b) unless her marginal tax rate is 40%
Yes pretty much it.
Slaav,
Just trying to avoid the hoops and complication (for them and me) that advice from IFAs incur. Fed up with them, kissed goodbye to the last one a couple of years ago.
I’ve recently been pondering this very question. I decided that my goals were
1. Minimise the amount of tax paid.
2. Maximise the amount passed down (with out compromising my life style).
3. Minimise any inheritance tax.
4. Ensure i still have a decent rainy day pot so not spending all the cash.
I built a spreadsheet that allowed me to tweak the various levers, even considering the effect of taking a DB pot earlier.
This allowed me to see the impact on these numbers.
Obviously everyone’s situation is different, so my results may not be the same as yours. I can’t rememer off of the top of my head what combination works out best.
1. Minimise the amount of tax paid.
2. Maximise the amount passed down (with out compromising my life style).
3. Minimise any inheritance tax.
4. Ensure i still have a decent rainy day pot so not spending all the cash.
I built a spreadsheet that allowed me to tweak the various levers, even considering the effect of taking a DB pot earlier.
This allowed me to see the impact on these numbers.
Obviously everyone’s situation is different, so my results may not be the same as yours. I can’t rememer off of the top of my head what combination works out best.
xeny said:
Slaav said:
There are lots of moving parts involved and the answer can often be completely different for two couples with the exact same circumstances.
Surely for the exact same circumstances the answer should be identical? Otherwise the answer is not deterministic.I should have been clearer......
Slaav said:
Apologies, 'exact same circusmtances' meaning finances and valuations. Their personal circumstances may also be indentical but are their GOALS, FEARS and RISK PROFILES etc? I meant the basic numbers and facts - some dont care about IHT, some will! That last point gives rise to different approaches surely?
Agreed. Identical financial circumstances in a different personal context result in different goals and hence approaches.PositronicRay said:
a) Continuing drawing income from the taxable portion (keeping below the 40% threshold) therefore taking 20% tax on the chin now?
b) Draw from the tax-free bit deferring paying tax until its exhausted?
c) Or is it as long as its broad?
As Countdown already said, just on the above question, (b) makes most sense as you'll be taking less of the pot (for a given net amount) because there's no tax to pay.b) Draw from the tax-free bit deferring paying tax until its exhausted?
c) Or is it as long as its broad?
I'll soon have a similar dilemma and came across this - https://www.vanguard.co.uk/content/dam/intl/europe...
Tresco said:
I'll soon have a similar dilemma and came across this - https://www.vanguard.co.uk/content/dam/intl/europe...
Thanks for sharing. 
supersport said:
I’ve recently been pondering this very question. I decided that my goals were
1. Minimise the amount of tax paid.
2. Maximise the amount passed down (with out compromising my life style).
3. Minimise any inheritance tax.
4. Ensure i still have a decent rainy day pot so not spending all the cash.
I built a spreadsheet that allowed me to tweak the various levers, even considering the effect of taking a DB pot earlier.
This allowed me to see the impact on these numbers.
Obviously everyone’s situation is different, so my results may not be the same as yours. I can’t rememer off of the top of my head what combination works out best.
Hi SS, I wonder if you'd be so kind as to send me a blank copy of the spreadsheet so I can illustrate things to myself? 1. Minimise the amount of tax paid.
2. Maximise the amount passed down (with out compromising my life style).
3. Minimise any inheritance tax.
4. Ensure i still have a decent rainy day pot so not spending all the cash.
I built a spreadsheet that allowed me to tweak the various levers, even considering the effect of taking a DB pot earlier.
This allowed me to see the impact on these numbers.
Obviously everyone’s situation is different, so my results may not be the same as yours. I can’t rememer off of the top of my head what combination works out best.
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