Pension tax efficiency
Discussion
I haven't discussed this with my IFA yet, I thought I'd get some thoughts from the experienced people on here. We're both 57
My income is below the personal allowance so I've opted to transfer a chunk of PL to Mrs PR to reduce her tax burden. She receives an occupational pension.
I have a pension pot plus stocks shares ISAs in cautious funds. At the moment we're living off Mrs PR's pension plus savings. I reckon I'll need to start drawing down 15-20k p.a. Once in receipt of our state pension I can reduce the draw down to around £5k p.a. (all based on today's money)
Is it worth going into draw down now and drawing of the taxable part of the pot, whilst I'm a non tax payer? Neither of us are using our ISA allowance so surplus cash can go here.
My income is below the personal allowance so I've opted to transfer a chunk of PL to Mrs PR to reduce her tax burden. She receives an occupational pension.
I have a pension pot plus stocks shares ISAs in cautious funds. At the moment we're living off Mrs PR's pension plus savings. I reckon I'll need to start drawing down 15-20k p.a. Once in receipt of our state pension I can reduce the draw down to around £5k p.a. (all based on today's money)
Is it worth going into draw down now and drawing of the taxable part of the pot, whilst I'm a non tax payer? Neither of us are using our ISA allowance so surplus cash can go here.
You don't need to crystallise the whole pension. You should be able to crystallise part as an Uncrystallised Funds Pension Lump Sum (bit of a mouthful I know), 25% would be tax free and 75% taxed but you claim any excess tax back from HMRC.
So, if your unused personal allowance is £7500 for example, you crystallise £10,000.
Make sure your pension provider doesn't charge silly fees to do this though.
So, if your unused personal allowance is £7500 for example, you crystallise £10,000.
Make sure your pension provider doesn't charge silly fees to do this though.
I may have misread that. If you want to transfer some married allowance, your partner needs to be a higher rate taxpayer.
Have you considered the pros and cons of making a modest lump sum contribution into a pension in your name, and crystallising it the next day? Search 'pension triviality rules', I don't know if your personal circumstances would make it suitable mind.
Have you considered the pros and cons of making a modest lump sum contribution into a pension in your name, and crystallising it the next day? Search 'pension triviality rules', I don't know if your personal circumstances would make it suitable mind.
Mrs PR is a basic rate 20% taxpayer.
https://www.gov.uk/government/publications/transfe...
Some of my tax free allowance has been transferred. We received a tax rebate at the end of last year and her tax bill has been reduced.
https://www.gov.uk/government/publications/transfe...
Some of my tax free allowance has been transferred. We received a tax rebate at the end of last year and her tax bill has been reduced.
Edited by PositronicRay on Thursday 21st January 13:56
Ray,
Sorry - you're bang on correct, I even blogged about it on the 3 Jan. My only excuse is (for some reason) I wrote Higher when I meant Basic, or meant to say 'not' Higher. Only a small fraction are using it, here's a reminder.
http://www.fiveraday.co.uk/blog/are-you-using-your...
Look at that triviality thing too. If you're a basic rate taxpayer, if the rate goes up to 30% in the next FY and you repeat then, it could work out quite nicely for you. Don't bake my word for it though (I mean, I can't even get my tax rates right), take a personal, informed view.
Sorry - you're bang on correct, I even blogged about it on the 3 Jan. My only excuse is (for some reason) I wrote Higher when I meant Basic, or meant to say 'not' Higher. Only a small fraction are using it, here's a reminder.
http://www.fiveraday.co.uk/blog/are-you-using-your...
Look at that triviality thing too. If you're a basic rate taxpayer, if the rate goes up to 30% in the next FY and you repeat then, it could work out quite nicely for you. Don't bake my word for it though (I mean, I can't even get my tax rates right), take a personal, informed view.
Ray,
Sorry - you're bang on correct, I even blogged a reminder about it on the 3 Jan. My only excuse is (for some reason) I wrote Higher when I meant Basic, or meant to say 'not' Higher. Only a small fraction are using it, here's a reminder.
http://www.fiveraday.co.uk/blog/are-you-using-your...
Look at that triviality thing too. If you're a basic rate taxpayer, if the rate goes up to 30% in the next FY and you repeat then, it could work out quite nicely for you. Don't bake my word for it though (I mean, I can't even get my tax rates right), take a personal, informed view.
Sorry - you're bang on correct, I even blogged a reminder about it on the 3 Jan. My only excuse is (for some reason) I wrote Higher when I meant Basic, or meant to say 'not' Higher. Only a small fraction are using it, here's a reminder.
http://www.fiveraday.co.uk/blog/are-you-using-your...
Look at that triviality thing too. If you're a basic rate taxpayer, if the rate goes up to 30% in the next FY and you repeat then, it could work out quite nicely for you. Don't bake my word for it though (I mean, I can't even get my tax rates right), take a personal, informed view.
Triviality doesn't apply to defined contribution funds any more.
There is small pot commutation (where less than £10,000) but it is the pension providers choice to make a one off payment, and UFPLS which is the members choice and can be for any amount.
Instead of a UFPLS you can of course crystallise all your whole pension fund, receive 25% as a tax free lump sum and the remainder as flexi-access drawdown pension. You draw whatever balance personal allowance is available.
This all assumes your pension is a defined contribution arrangement not a defined benefit one.
There is small pot commutation (where less than £10,000) but it is the pension providers choice to make a one off payment, and UFPLS which is the members choice and can be for any amount.
Instead of a UFPLS you can of course crystallise all your whole pension fund, receive 25% as a tax free lump sum and the remainder as flexi-access drawdown pension. You draw whatever balance personal allowance is available.
This all assumes your pension is a defined contribution arrangement not a defined benefit one.
PositronicRay said:
My original question.
As I'm going to be a non tax payer for the next 3 yrs. Is there a benefit to taking money out of the taxable 75% up to my personal allowance limit and sticking it in ISA's
I'm not an IFA but I would say in principle yes. It's tax free and if you don't use your personal allowance in a tax year it's lost forever.As I'm going to be a non tax payer for the next 3 yrs. Is there a benefit to taking money out of the taxable 75% up to my personal allowance limit and sticking it in ISA's
There is a slight detriment in potential inheritance tax but not enough to warrant not doing it in my opinion.
It's the costs to do it that are of concern. The charges of some providers for UFPLS/crystallisation can be significant, and you need to watch any exit penalties when encashing investments.
PurpleMoonlight said:
PositronicRay said:
My original question.
As I'm going to be a non tax payer for the next 3 yrs. Is there a benefit to taking money out of the taxable 75% up to my personal allowance limit and sticking it in ISA's
I'm not an IFA but I would say in principle yes. It's tax free and if you don't use your personal allowance in a tax year it's lost forever.As I'm going to be a non tax payer for the next 3 yrs. Is there a benefit to taking money out of the taxable 75% up to my personal allowance limit and sticking it in ISA's
There is a slight detriment in potential inheritance tax but not enough to warrant not doing it in my opinion.
It's the costs to do it that are of concern. The charges of some providers for UFPLS/crystallisation can be significant, and you need to watch any exit penalties when encashing investments.
Gassing Station | Finance | Top of Page | What's New | My Stuff