Tax on pension when drawing out cash?
Discussion
Really sorry if this is a daft question with an obvious answer.
If I have a decent savings pot and a decent separate pension fund, therefore planning to take some money from each every year once I retire.
What rate of tax will I pay if I draw just £12000 pa from the pension and just take further funds from savings?
Does it depend on my income from interest? For example, if I were to get £10k interest pa, will I therefore pay 20% tax on the balance of pension received above total income of £12,570?
If I have a decent savings pot and a decent separate pension fund, therefore planning to take some money from each every year once I retire.
What rate of tax will I pay if I draw just £12000 pa from the pension and just take further funds from savings?
Does it depend on my income from interest? For example, if I were to get £10k interest pa, will I therefore pay 20% tax on the balance of pension received above total income of £12,570?
Yup - you’ll pay tax on any income over the personal allowance.
Dont forget though that you can take a smaller amount of 25% cash tax free every year rather than just taking a single huge lump sum by crystalising your whole pot.
So if, using your example you had £10k of interest income you could take £2570 drawdown from your pension plus another 25% mini lump sum on top of that, so £642.50, so £3212.50 in total. All of which would keep you under the personal allowence and thus zero tax to pay.
That said if your so close to the personal allowance on interest earnings and have a decent amount in a pension you’ll likely never even access it all with this approach, so id say maybe set your eyes on the upper limit of the 20% band (£50,270) and look to drawdown within your fund means to that limit instead, paying just 20% tax on the main sum drawn down over the personal allowance, plus always topping it up each yeah with a 25% tax free mini lump sum.
The cumulative amount of your mini lump sums over your lifetime cannt exceed £268,275 however, even under the new budget rules.
Dont forget though that you can take a smaller amount of 25% cash tax free every year rather than just taking a single huge lump sum by crystalising your whole pot.
So if, using your example you had £10k of interest income you could take £2570 drawdown from your pension plus another 25% mini lump sum on top of that, so £642.50, so £3212.50 in total. All of which would keep you under the personal allowence and thus zero tax to pay.
That said if your so close to the personal allowance on interest earnings and have a decent amount in a pension you’ll likely never even access it all with this approach, so id say maybe set your eyes on the upper limit of the 20% band (£50,270) and look to drawdown within your fund means to that limit instead, paying just 20% tax on the main sum drawn down over the personal allowance, plus always topping it up each yeah with a 25% tax free mini lump sum.
The cumulative amount of your mini lump sums over your lifetime cannt exceed £268,275 however, even under the new budget rules.
Edited by AdamV12V on Monday 20th March 19:20
Mr Squarekins said:
Really sorry if this is a daft question with an obvious answer.
If I have a decent savings pot and a decent separate pension fund, therefore planning to take some money from each every year once I retire.
What rate of tax will I pay if I draw just £12000 pa from the pension and just take further funds from savings?
Does it depend on my income from interest? For example, if I were to get £10k interest pa, will I therefore pay 20% tax on the balance of pension received above total income of £12,570?
I believe you're allowed £5k in interest from savings tax free for an income of up to £12,750 and a further £1000 personal savings allowance for earnings up to £17,570 If I have a decent savings pot and a decent separate pension fund, therefore planning to take some money from each every year once I retire.
What rate of tax will I pay if I draw just £12000 pa from the pension and just take further funds from savings?
Does it depend on my income from interest? For example, if I were to get £10k interest pa, will I therefore pay 20% tax on the balance of pension received above total income of £12,570?
income from a pension is taxed the same as normal income, so tax free annual allowance of £12570 then 20% for next £37,700 and so on,
if the £12,000 you draw down from your pension is the only taxable income you receive then you should get the full £5k + £1k personal allowance and anything above this would be taxable as income,
If the interest you expect to receive is from an ISA then it's tax free and won't need to be declared
if the interest you receive from savings is above £10k I believe you have to register for self assessment.
timberman said:
I believe you're allowed £5k in interest from savings tax free for an income of up to £12,750 and a further £1000 personal savings allowance for earnings up to £17,570
income from a pension is taxed the same as normal income, so tax free annual allowance of £12570 then 20% for next £37,700 and so on,
if the £12,000 you draw down from your pension is the only taxable income you receive then you should get the full £5k + £1k personal allowance and anything above this would be taxable as income,
If the interest you expect to receive is from an ISA then it's tax free and won't need to be declared
if the interest you receive from savings is above £10k I believe you have to register for self assessment.
Income from a pension would reduce the £5000 allowance, but you’re right about the £1000 tax free amount beyond that. So i think OP could add £1250 (£1000+25% tax free) to the figures above that he could drawdown, but the £5k is wiped out by any equivalent pension income, £1 per £1 taken.income from a pension is taxed the same as normal income, so tax free annual allowance of £12570 then 20% for next £37,700 and so on,
if the £12,000 you draw down from your pension is the only taxable income you receive then you should get the full £5k + £1k personal allowance and anything above this would be taxable as income,
If the interest you expect to receive is from an ISA then it's tax free and won't need to be declared
if the interest you receive from savings is above £10k I believe you have to register for self assessment.
https://www.gov.uk/apply-tax-free-interest-on-savi...
AdamV12V said:
timberman said:
I believe you're allowed £5k in interest from savings tax free for an income of up to £12,750 and a further £1000 personal savings allowance for earnings up to £17,570
income from a pension is taxed the same as normal income, so tax free annual allowance of £12570 then 20% for next £37,700 and so on,
if the £12,000 you draw down from your pension is the only taxable income you receive then you should get the full £5k + £1k personal allowance and anything above this would be taxable as income,
If the interest you expect to receive is from an ISA then it's tax free and won't need to be declared
if the interest you receive from savings is above £10k I believe you have to register for self assessment.
Income from a pension would reduce the £5000 allowance, income from a pension is taxed the same as normal income, so tax free annual allowance of £12570 then 20% for next £37,700 and so on,
if the £12,000 you draw down from your pension is the only taxable income you receive then you should get the full £5k + £1k personal allowance and anything above this would be taxable as income,
If the interest you expect to receive is from an ISA then it's tax free and won't need to be declared
if the interest you receive from savings is above £10k I believe you have to register for self assessment.
TwigtheWonderkid said:
Only income above £12570. OP could take £16760 from pension tax free (£4190 being the 25% tax free and £12570 personal allowance), and still earn £6K tax free in interest.
You are forgetting the £10k in interest the op stated he was earning in his example which is what i was working to….I'm not sure if I missed it, but if you want to withdraw £12,000, you can withdraw £3,000 as a tax-free lump sum and the remaining £9,000 will be taxed as income along with any other income. As it is less than £17,570, you can also make £6,000 as untaxed interest. You will have to pay 20% on the £4,000 interest that is above the £6,000.
So, £12,000 + £10,000 - £800 = £21,200
Can you avoid the £10k interest, and draw more from where you get the £12k?
So, £12,000 + £10,000 - £800 = £21,200
Can you avoid the £10k interest, and draw more from where you get the £12k?
Edited by pingu393 on Monday 20th March 23:06
AdamV12V said:
TwigtheWonderkid said:
Only income above £12570. OP could take £16760 from pension tax free (£4190 being the 25% tax free and £12570 personal allowance), and still earn £6K tax free in interest.
You are forgetting the £10k in interest the op stated he was earning in his example which is what i was working to….AdamV12V said:
Yup - you’ll pay tax on any income over the personal allowance.
The cumulative amount of your mini lump sums over your lifetime cannt exceed £268,275 however, even under the new budget rules.
Unless ( assuming I believe correctly ) you are in the fortunate position of already having the benefit of fixed protection - ie if fixed at say the £1.50m then the 25% equates to £ 375,000 etc.The cumulative amount of your mini lump sums over your lifetime cannt exceed £268,275 however, even under the new budget rules.
Edited by AdamV12V on Monday 20th March 19:20
Thanks all. The funds providing interest are a mixture of bonds and isas.
Fortunately I have complete flexibility about how I choose to split the sources of cash to provide disposable income between savings, interest and pension drawdown.
I'll take on board everything mentioned, thanks.
Fortunately I have complete flexibility about how I choose to split the sources of cash to provide disposable income between savings, interest and pension drawdown.
I'll take on board everything mentioned, thanks.
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