year 20 -21 tax allowance

[Phillip Dee tank]

Morning All,

Due to health issues associated with Covid I have not earnt anything during 20-21 tax year. I am investigating taking my pension pot to pay off debts incurred including mortgage arrears. Is there anyway I can gain back the tax free allowance ? I am over 55 so eligable to take my pension

Thanks for any guidance.

[Mr Pointy]

Assuming it is a defined contribution pension & not a defined benefit one there are a (small) number of ways you can begin to withdraw money from your pension & if arranged correctly it can result in no tax being payable, up to a certain amount of withdrawn funds. Have a look through the PensionWise site:

https://www.pensionwise.gov.uk/en
https://www.pensionwise.gov.uk/en/pension-pot-opti...

I'd also suggest contacting Nik at IM who can talk through your options if you give him more details:
https://www.pistonheads.com/gassing/topic.asp?h=0&...

If you post on the thread he should see it.

[Simpo Two]

Phillip Dee tank said:

I have not earnt anything during 20-21 tax year. I am investigating taking my pension pot to pay off debts incurred including mortgage arrears. Is there anyway I can gain back the tax free allowance ? I am over 55 so eligable to take my pension

Do you mean your income tax allowance (£12,500 for that year) or the '25% tax free' option when you raid your pension?

If you didn't use your 20-21 income tax allowance I'm not sure it can be used retrospectively (ie have twice as much in 21/22). But stand to be corrected.

[Phillip Dee tank]

Thanks Mr Pointy

yes Simpo both. I earnt nothing 20-21 no Government support for my Ltd Co which I started in 2020 but had no turn-over anyway due to my ill health and looking to minimise the tax I pay when taking my pension pot to pay off/ reduce my debts.

Bit of a mess really that I am trying to face it now .

Thanks

[Simpo Two]

Phillip Dee tank said:

Thanks Mr Pointy

yes Simpo both. I earnt nothing 20-21 no Government support for my Ltd Co which I started in 2020 but had no turn-over anyway due to my ill health and looking to minimise the tax I pay when taking my pension pot to pay off/ reduce my debts.

Bit of a mess really that I am trying to face it now .

Thanks

I would think - but please check with somebody expert like Nik at IM - that for 20/21 you've blown it (ie can't utilise your income tax allowance for that year). However for 21/22, ie now, you could take 25% of your pension fund tax free, and then take another £12,570 (your income tax allowance 21/22) of the balance tax free as well. (Obviously then if you earn any money in 21/22 you'll pay income tax on all of it)

Pillaging your pension to pay debts is very honourable but also look at what you plan to live on in the future - you can only spend your pension fund once.

[Phillip Dee tank]

Thanks Simpo thats about what I thought. Yes need to pay debts off as house has some considerable value in it so need to get morgage paid up and back on track. Other bills include hired factory rent and rates and power etc who will want their pound of flesh ! I am in the process of moving out of my rented factory so once that is completed I may be able to generate money.

[Mr Pointy]

Simpo Two said:

I would think - but please check with somebody expert like Nik at IM - that for 20/21 you've blown it (ie can't utilise your income tax allowance for that year). However for 21/22, ie now, you could take 25% of your pension fund tax free, and then take another £12,570 (your income tax allowance 21/22) of the balance tax free as well. (Obviously then if you earn any money in 21/22 you'll pay income tax on all of it)

Pillaging your pension to pay debts is very honourable but also look at what you plan to live on in the future - you can only spend your pension fund once.

OP, note that once you take anything over the 25% tax free sum out of your pension you then become subject to the Money Purchase Annual Allowance which limits you (forever) to a maximum pension contribution of £4000 a year. Of course this may not be an issue if you don't plan on making future contributions.