AJ Bell lump sum confusion

[Urbandreamer]

It would be much simpler if the rule was everyone can take out X pounds per year tax free and anything more is taxable. This would be more progressive too.

Err, they can.

Last time that I checked, the personal income tax allowance applied to pensions as well.
The allowance is £12570. If you combine that with your 25% by using UFPLS then you can take out £16,760* each before you pay tax.
Assuming that you are not old enough to draw the state pension.
If you are then you need to reduce what you take, in order to avoid tax as income from the state pension is not excluded from the calculation.

YES I have thought about this and the numbers are from my spreadsheet.
I've been retired almost a year and as yet have not touched my pension for tax reasons.

In my case to mitigate IHT. Basically I currently need to spend my ISA in order that the least tax is paid. Yes I'm sacrificing my income tax personal allowance in order to reduce the IHT my estate may pay. (it's an ideological thing)

*Ps this study claims that £16,760 is more than the minimum that you "need".
https://www.retirementlivingstandards.org.uk/
Top things up with income from ISA's and you need pay no tax for a "moderate" or even "comfortable" lifestyle.

[MrFoolish]

Err, they can.

Last time that I checked, the personal income tax allowance applied to pensions as well.
The allowance is £12570. If you combine that with your 25% by using UFPLS then you can take out £16,760* each before you pay tax.
Assuming that you are not old enough to draw the state pension.
If you are then you need to reduce what you take, in order to avoid tax as income from the state pension is not excluded from the calculation.

I was suggesting getting rid of the 25% complication. Allow a fixed limit withdrawal every year which is completely free of tax, and the thresholds become irrelevant - like income from an ISA. Additional withdrawals would be taxable in the normal way. I think it would be a lot easier to understand.

[Urbandreamer]

Err, they can.

Last time that I checked, the personal income tax allowance applied to pensions as well.
The allowance is £12570. If you combine that with your 25% by using UFPLS then you can take out £16,760* each before you pay tax.
Assuming that you are not old enough to draw the state pension.
If you are then you need to reduce what you take, in order to avoid tax as income from the state pension is not excluded from the calculation.

I was suggesting getting rid of the 25% complication. Allow a fixed limit withdrawal every year which is completely free of tax, and the thresholds become irrelevant - like income from an ISA. Additional withdrawals would be taxable in the normal way. I think it would be a lot easier to understand.

AH, but see my previous post. That works for new people, but existing people have their promise. That you can NOT deny. IF the existing scheme promised a 25% tax free lump sum, can you abolish the option? Isn't that the very start of this thread?

Personally I have a very low opinion of our country, but not so low that I could accept working for 30-40 years on a promise that was reneged upon. Expect to see me on the barricades or making home made napalm if the government reneges upon a decades old promise that they made to me.

PS, your option DENIES the 25% lump sum. No paying off the mortgage as you planed back in the 80's when you took out that interest only mortgage and increased your pension contributions, expecting the pension lump sum to pay it off. OK I didn't, but others did. Napalm time!

[MrFoolish]

PS, your option DENIES the 25% lump sum. No paying off the mortgage as you planed back in the 80's when you took out that interest only mortgage and increased your pension contributions, expecting the pension lump sum to pay it off. OK I didn't, but others did. Napalm time!

Well you could take the 25% before the new rules kick in. Anyway, no government is going to do something like this, Shirley, so let's not worry about hypotheticals.

[Urbandreamer]

PS, your option DENIES the 25% lump sum. No paying off the mortgage as you planed back in the 80's when you took out that interest only mortgage and increased your pension contributions, expecting the pension lump sum to pay it off. OK I didn't, but others did. Napalm time!

Well you could take the 25% before the new rules kick in. Anyway, no government is going to do something like this, Shirley, so let's not worry about hypotheticals.

Maybe I could. Because I'm over 55. Sorry is that 57 now? Seriously they very carefully move the goal posts such that those close to the target don't start brewing Napalm.

Many young people seriously expect to be defrauded by our government, and blame the like of me, because we are not being defrauded. Sure the country can't afford the promises that have been made, but that doesn't mean that they were not made!

As you say, lets not worry about your suggestion. My point though was that it's simply not that easy.

For goodness sake consider the WASPI women! I'm surprised that we haven't seen violence.

PS a book recommendation (off topic)
https://www.amazon.co.uk/Granny-Made-An ... 0743263561
Time will tell if the WASPI women influence their children or grandchildren.

[MrFoolish]

Well they promised to level up the north, to build HS2, to get lots of great trade deals, and not to put up taxes. I guess you'll have to pick your fights.

[Gilgongo]

Also just to return to the withdrawal point again - is using UFPLS withdrawals also affected by the income tax "month one problem"? So if I take out any cash, HMRC will assume that I will be taking the same amount per month rather than per quarter as I intend (so in my case a total of £18K per not £6K)?

Is the only way to avoid that issue to wait until AJ Bell have received a P45 tax code from HMRC before I make any withdrawals? If so, when does that happen?

[swill453]

Also just to return to the withdrawal point again - is using UFPLS withdrawals also affected by the income tax "month one problem"? So if I take out any cash, HMRC will assume that I will be taking the same amount per month rather than per quarter as I intend (so in my case a total of £18K per not £6K)?

Is the only way to avoid that issue to wait until AJ Bell have received a P45 tax code from HMRC before I make any withdrawals? If so, when does that happen?

In my experience it doesn't make much difference. Whether you have an emergency tax code or a pukka one, if you make a large taxable withdrawal early in the tax year you'll be overtaxed.

Doesn't matter whether it's standard drawdown or UFPLS.

Scott.