Provide income after retirement and minimise tax
Discussion
Good afternoon all.
Sorry, long post!
Myself and Mrs Beano have now been retired for 10+ years.
I'm working out my strategy for the next phase of our retirement and would welcome your comments and thoughts on our plans.
Our aim is to make our income requirements (approx 35k PA) and minimise, or pay zero tax to HMRC.
Our investments are split 50:50, so we can both fully take advantage of the current tax thresholds.
Our spend rate is less than 3% of our assets. We're looking to increase our spending, but, after a couple of decades of accumulation, it's hard to open the taps!
We are 57 / 56 years old.
With that all out of the way, here is our strategy (based on current tax rules!!)
- We both receive £12570 as income from our pensions. This uses up our personnel allowance, so no tax to be paid. We are crystallising portions of our SIPPS to do this. The tax free amount of this will probably be going to future ISA contributions / top up cash buffer.
As our incomes are 'low' we can take advantage of the starter rate for savings, meaning that any cash we hold (currently 3 years burn) earns interest free of tax. (up to 6k interest each - not that it would ever earn that much).
- We have GIA's. These have been running down over the years(approx 3 years left). These are used to :
- Fund the full ISA contribution for us both
- Top up the pension income to reach our annual income requirement
- Make an annual payment to our SIPP's (£2880 each, but the grossing up is free!)
The GIA have been churned over the years, so the above can, currently be achieved by utilising our CGT allowances. So no tax to pay on this income stream
The aim for the GIA is to run them down to approx 10k each. They can then pay an approx 5% dividend (VHYL or similar) to utilise the annual dividend allowance
- ISA's. We are currently still increasing the ISA's each year and do not take any income from them. This should continue for the next three years or so, until the GIA's are down to 10k.
The next bit, is where I would appreciate your input!
Once the GIA's are at 10k each, do I?
- Begin to run the ISA's down to bridge the income gap? SIPP still being taken to the utilise the personal allowance (I'm thinking that we should run them down until there is approx 150k in each and then stop. The logic for this is the ISA is fully accessible, without tax considerations. This would allow for unplanned large expenditure (Cars, health, bailing the children out etc) to be made.
Once we hit this point, we begin to access the SIPPS more.
OR
- Maintain the ISA's and bridge the income gap by accessing more of the tax free lump sum. (still no tax to pay in this scenario). Continue with this until the tax free portion has gone and then access ISA's or increase monthly income from SIPP's (with the resultant increase in tax).
I understand that IHT is going to rear its evil head at some time (if we don't spend it all, that is).
My thoughts are, if IHT is going to be paid (especially since SIPP's are going to be bundled into the pot from 2027), then tax paid after we are gone would be a better choice over paying tax whilst alive on income (and possibly still IHT when we've pegged it).
I suppose, IHT can be avoided with planning, whilst income tax whilst alive cannot!
Sorry, long post!
Myself and Mrs Beano have now been retired for 10+ years.
I'm working out my strategy for the next phase of our retirement and would welcome your comments and thoughts on our plans.
Our aim is to make our income requirements (approx 35k PA) and minimise, or pay zero tax to HMRC.
Our investments are split 50:50, so we can both fully take advantage of the current tax thresholds.
Our spend rate is less than 3% of our assets. We're looking to increase our spending, but, after a couple of decades of accumulation, it's hard to open the taps!
We are 57 / 56 years old.
With that all out of the way, here is our strategy (based on current tax rules!!)
- We both receive £12570 as income from our pensions. This uses up our personnel allowance, so no tax to be paid. We are crystallising portions of our SIPPS to do this. The tax free amount of this will probably be going to future ISA contributions / top up cash buffer.
As our incomes are 'low' we can take advantage of the starter rate for savings, meaning that any cash we hold (currently 3 years burn) earns interest free of tax. (up to 6k interest each - not that it would ever earn that much).
- We have GIA's. These have been running down over the years(approx 3 years left). These are used to :
- Fund the full ISA contribution for us both
- Top up the pension income to reach our annual income requirement
- Make an annual payment to our SIPP's (£2880 each, but the grossing up is free!)
The GIA have been churned over the years, so the above can, currently be achieved by utilising our CGT allowances. So no tax to pay on this income stream
The aim for the GIA is to run them down to approx 10k each. They can then pay an approx 5% dividend (VHYL or similar) to utilise the annual dividend allowance
- ISA's. We are currently still increasing the ISA's each year and do not take any income from them. This should continue for the next three years or so, until the GIA's are down to 10k.
The next bit, is where I would appreciate your input!
Once the GIA's are at 10k each, do I?
- Begin to run the ISA's down to bridge the income gap? SIPP still being taken to the utilise the personal allowance (I'm thinking that we should run them down until there is approx 150k in each and then stop. The logic for this is the ISA is fully accessible, without tax considerations. This would allow for unplanned large expenditure (Cars, health, bailing the children out etc) to be made.
Once we hit this point, we begin to access the SIPPS more.
OR
- Maintain the ISA's and bridge the income gap by accessing more of the tax free lump sum. (still no tax to pay in this scenario). Continue with this until the tax free portion has gone and then access ISA's or increase monthly income from SIPP's (with the resultant increase in tax).
I understand that IHT is going to rear its evil head at some time (if we don't spend it all, that is).
My thoughts are, if IHT is going to be paid (especially since SIPP's are going to be bundled into the pot from 2027), then tax paid after we are gone would be a better choice over paying tax whilst alive on income (and possibly still IHT when we've pegged it).
I suppose, IHT can be avoided with planning, whilst income tax whilst alive cannot!
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