SIPP Drawdown

[swill453]

As I said, however, Youinvest makes the payment within a week of the request. So if you make the online request on say Thursday 25th April 2021 you get the payment made the next week and so use essentially all your PA except for perhaps a weeks worth.

I presume you meant 25th March?

Scott.

[Joe45]

Further question on nuts & bolts of UFPLS: I’m assuming I need to ensure there is cash in my SIPP ahead of the draw date. What happens if there isn’t enough? Does the SIPP provider sell investments or simply advise me that I must do this?

[swill453]

Further question on nuts & bolts of UFPLS: I’m assuming I need to ensure there is cash in my SIPP ahead of the draw date. What happens if there isn’t enough? Does the SIPP provider sell investments or simply advise me that I must do this?

Speaking for AJBell Youinvest, if you don't have enough cash the payment will fail. They tell you that.

Scott.

[DiviLuvva]

As I said, however, Youinvest makes the payment within a week of the request. So if you make the online request on say Thursday 25th April 2021 you get the payment made the next week and so use essentially all your PA except for perhaps a weeks worth.

I presume you meant 25th March?

Scott.

Of course. Sorry.

[fisher]

Thanks to both of you DiviLuvva & swill453 .

[Joe45]

I’ve opened correspondence with my SIPP provider (iWeb) with a view to commencing drawdown from April.

I want to take a regular gross monthly payment of £1,340 which, with the first 25% tax free, will just use up my personal income tax allowance. I would expect to have a bit of cash in my SIPP account available at all times to fund this.

This is known as UFPLS where the SIPP fund is left uncrystallised and only the amount withdrawn is crystallised with 25% of it being tax free and the other 75% being taxed at your marginal rate.

I’ve had my Pensionwise meeting.

I don’t want a tax free lump sum, so I think what I need to do is crystallise the whole lot, then do flexi-access drawdown in the monthly amount I need.

For a DC pension such as a SIPP it pretty much always makes sense to take the 25% tax free lump sum either bit by bit using UFPLS or in one go by crystallising the pot. With DB pensions the 25% tax free lump sum is generally taken by giving up some annual pension in a process known as commutation. Unfortunately commutation rates (the amount of tax free lump you get for each £1 of annual income given up) are usually pretty terrible. Hence with a DB pension it may well be better to forgo the 25% tax free lump sum unless there are special circumstances such as a reduced life expectancy. Note. Older DB pensions may have a built-in tax free lump sum amount though it would often be less than 25% of the calculated value of the pension so in that case it would be ok to take that lump sum amount but not bother commuting any more to bring it up to the 25% level.

I’m confident that many many retirees do exactly this. Can someone let me know if I am on track? What is the difference between crystallising the whole lot now, and crystallising in lumps of (say) £20,000 a year?

Many thanks.

Crystallising a pot in pieces is possible but you would need to check with your SIPP provider as not all offer it as an option - it is usually referred to as phased crystallisation. Some providers may also treat such a partially crystallised pot as though it were multiple pots and apply charges to each pot thus increasing your charges. This option was more popular before the introduction of UFPLS.

UFPLS is generally a good way to go unless you are getting close to the LTA limit. This is because each time you take a UFPLS drawdown an LTA test is carried out using up a percentage of your LTA limit and finally at age 75 a final LTA test is carried out against anything left uncrystallised.
This means that all the growth which occurs in the pot up until age 75 is captured by these tests. This if your pot would achieve enough growth to exceed the LTA limit by the time you are 75 it might be better to crystallise the pot instead. If instead of using UFPLS you crystallised the pot and used flexible drawdown then there would be a test when the pot was crystallised and then another at age 75. However crucially the test at age 75 would only look at growth since crystallisatioin which was still in the pot at age 75 and there are no LTA tests on amounts drawndown in the meantime. Thus you can avoid exceeding the LTA limit by crystallising early and then making sure that you have drawn down any growth which occurred before you reach the age of 75. How close to the LTA limit your pot would need to be for this to be a concern depends upon how many years you have to go before reaching 75 and the amount of growth that occurs - since the LTA limit is now rising with CPI this is less of a worry than it was but it is something to consider if your pot is already about £700,000 or so.

Thank you for such a lengthy and detailed response. My SIPP is just north of £800k and I’m 59. Some crude modelling suggests it will challenge the LTA within a few years even though I’ve used it to hold most of my bond allocation. Having recently retired I have plenty of spare time to carry out research.

This suggests that once you have allocated funds to drawdown, withdrawals from the drawdown fund won’t eat into the unused LTA. If that’s not the case then I can’t see any difference between this approach and simply continuing with a series of UFPLS payments.

[ursaminortaur]

This is known as UFPLS where the SIPP fund is left uncrystallised and only the amount withdrawn is crystallised with 25% of it being tax free and the other 75% being taxed at your marginal rate.



For a DC pension such as a SIPP it pretty much always makes sense to take the 25% tax free lump sum either bit by bit using UFPLS or in one go by crystallising the pot. With DB pensions the 25% tax free lump sum is generally taken by giving up some annual pension in a process known as commutation. Unfortunately commutation rates (the amount of tax free lump you get for each £1 of annual income given up) are usually pretty terrible. Hence with a DB pension it may well be better to forgo the 25% tax free lump sum unless there are special circumstances such as a reduced life expectancy. Note. Older DB pensions may have a built-in tax free lump sum amount though it would often be less than 25% of the calculated value of the pension so in that case it would be ok to take that lump sum amount but not bother commuting any more to bring it up to the 25% level.



Crystallising a pot in pieces is possible but you would need to check with your SIPP provider as not all offer it as an option - it is usually referred to as phased crystallisation. Some providers may also treat such a partially crystallised pot as though it were multiple pots and apply charges to each pot thus increasing your charges. This option was more popular before the introduction of UFPLS.

UFPLS is generally a good way to go unless you are getting close to the LTA limit. This is because each time you take a UFPLS drawdown an LTA test is carried out using up a percentage of your LTA limit and finally at age 75 a final LTA test is carried out against anything left uncrystallised.
This means that all the growth which occurs in the pot up until age 75 is captured by these tests. This if your pot would achieve enough growth to exceed the LTA limit by the time you are 75 it might be better to crystallise the pot instead. If instead of using UFPLS you crystallised the pot and used flexible drawdown then there would be a test when the pot was crystallised and then another at age 75. However crucially the test at age 75 would only look at growth since crystallisatioin which was still in the pot at age 75 and there are no LTA tests on amounts drawndown in the meantime. Thus you can avoid exceeding the LTA limit by crystallising early and then making sure that you have drawn down any growth which occurred before you reach the age of 75. How close to the LTA limit your pot would need to be for this to be a concern depends upon how many years you have to go before reaching 75 and the amount of growth that occurs - since the LTA limit is now rising with CPI this is less of a worry than it was but it is something to consider if your pot is already about £700,000 or so.

Thank you for such a lengthy and detailed response. My SIPP is just north of £800k and I’m 59. Some crude modelling suggests it will challenge the LTA within a few years even though I’ve used it to hold most of my bond allocation. Having recently retired I have plenty of spare time to carry out research.

This suggests that once you have allocated funds to drawdown, withdrawals from the drawdown fund won’t eat into the unused LTA. If that’s not the case then I can’t see any difference between this approach and simply continuing with a series of UFPLS payments.

Each UFPLS payment results in a LTA test using up a percentage of your LTA limit and finally at age 75 if there is anything left which is uncrystallised then that is also tested against the LTA limit. This means all growth is captured and may lead to exceeeding the LTA limit.

If you use flexible drawdown on your entire pot then an LTA test is carried out at that point using up a percentage of your LTA limit. Drawdowns after that are subject to tax at your marginal rate but are not subject to any LTA test.
Finally at age 75 there will be another LTA test but that will only be on growth which has occurred since crystallisation and which still remains in the pot. The LTA test is

(amount in pot at age 75 - (amount in pot at crystallisation - tax free lump sum taken))

By drawing down a sufficient amount before age 75 you can make the result of this test zero (or if you have some of your LTA limit left after the crystallisation some amount which is less than that remaining LTA percentage).

The LTA excess charge is 55% if you take the excess as a lump sum) or 25% + your marginal tax rate if you drawdown the excess over a period. Hence all other things being equal* it is better to have drawn down the growth at your marginal tax rate rather than having to pay the LTA excess charge.

* If your employer is contributing to the pot then may well be better to suffer the excess charge than give up those employer contributions. Though once your employment stopped then it would be worth using flexible drawdown and withdrawing money before the age 75 test to minimise the LTA excess charge you get then even if you had to suffer an excess charge for exceeding the LTA when you entered flexible drawdown.


https://www.investorschronicle.co.uk/managing-your-money/2020/08/06/how-to-manage-the-lifetime-allowance/

Funds crystallised pre-age 75 which were close to the LTA cap are likely to have gains that exceed the cap. Because withdrawn funds are not counted, if you intend taking out the money for yourself anyway then “it could be worth accelerating your income withdrawals before age 75”, says Ms Ingram.

For example, let's say at the age of 65 you crystallise a pension pot, taking 25 per cent tax-free cash and putting the rest into drawdown, actions which use up all of your LTA and result in a small LAC. At age 75 there will be a further test – this time of the increase in your drawdown funds from the first crystallisation.

If the funds in your pot have grown by £400,000 you will have to pay a tax charge of £100,000 (£400k x 25 per cent). If you had withdrawn £150,000 more in income during the 10-year period you would have faced an age-75 tax charge on £250,000 instead. But you would also have had to pay income tax on the withdrawals.


https://www.thepfs.org/news-insight/news/articles/drawdown-planning-and-the-lifetime-allowance-tests/94262

The age 75 tests

At age 75 there are two potential tests for those planning with drawdown. Firstly, any funds that remain uncrystallised are tested at this point (BCE 5C). This is simply the value of any uncrystallised funds divided by the LTA at the time.

A slightly more complex second test also applies to any funds that are still held in drawdown (BCE5A). This test looks at the increase in the value of the drawdown fund since it was first designated.

For example, a client first designated funds into drawdown in July 2010 on their 65th birthday. They took £360,000 of tax-free cash and moved £1,080,000 into drawdown. The LTA at the time was £1.8m and so they used up 80%.

At the time of the second LTA test the funds in drawdown had grown to £1,380,000. This is an increase of £300,000.

The client has no LTA protection; therefore their remaining LTA is 20% of the current LTA, i.e. £1,073,100 x 20% = £214,620

The £300,000 increase is £85,380 more than the available LTA and so this subject to a 25% tax charge of £21,345. This will be deducted from the drawdown fund by the provider. There is no 55% lump sum option at this point.

As there are no longer any limits on the income the client can take in drawdown, there is the option to control how much is subject to the second LTA test at age 75. Income levels can be increased to reduce the fund value; however, any income will of course be subject to income tax. In addition, this may increase the value of the estate for IHT purposes if the income is not required.


If you want to use the pension as a way to bypass IHT then it is worth remembering that drawdown payments are income and hence rather than any extra you drawdown to avoid the LTA excess charge increasing your IHT estate you may want to look at gifting it to your beneficiaries whilst you are alive as gifts out of surplus income (which avoids the normal seven year period you need to survive when gifting capital).

https://www.tilney.co.uk/news/how-do-i-make-regular-financial-gifts-from-surplus-income

[Joe45]

Thanks again for this. Really helpful. I’ll take some time to absorb your thoughts and check out the links.

[r21442]

Just joined the forum. Experienced investor but pensions are a whole new level of sh*te to get one's head around. Distressing to learn that I'm not out the woods with one LTA test at crystallisation. Our situation:

I stopped working 5 years ago, locked in an LTA of £1.25m. WIfe earns >£300k and money is no major worry though nobody wants to give to the taxman. However, I got lucky 2 years ago putting masses into rampant BG funds so now both of us are close to our LTAs. She intends to retire next year and at that point, assuming she doesn't continue working, we'd both crystallise and move into drawdown.

I'm 59 now with a DB projected at £12.5kpa at 60 and £850k in DC pots and an LTA of £1.25m FP2016.
She's 55 now with DC pots of £958k and just the current LTA of £1.073m.
Between us we have £842k in ISAs, full £100k in PBs, £70k in cash, mort free house worth £1.6m and two kids both 1st year uni.
Our only tentative plan is to sell the house (way too big for 2) and have two smaller properties, one in the Canaries and put that in the kids names as some sort of IHT avoidance assuming we both live a few years.

Q1 - Daft as it sounds what do we have to do to crystallise - I mean the process - do I contact the taxman or just the pension companies? All material is around the choices, not the process!

Q2 - How is my DB pension valued towards my LTA - on 20x the per annum at the date of crystallisation or the transfer value (£422k)?

Q3 - Either way, it's looking like we are both close to LTA and the info that growth will be judged again at 75 is crap to say the least. My initial plan had been to leave all capital and live off a drawdown rate of 3.5% which should allow for decent growth assuming I can continue to manage my funds and pick winners long-term and also stay in base rate tax. Also we'd have invested the ISAs in high yielding investments (6-7%) until the state pensions kicked in and assume no or -ve growth. Now it seems like taking a larger pension drawdown might be better in light of LTA @ 75 judgement issues? I had no idea on whether to take the 25% TFA but now it seems that could be a good idea? Anyone any pointers?

BTW, we'll consult an IFA too for this stuff but I am very very wary. Also, I'm being flippant about paying the taxman! Don't mind paying my share though its a kick in the nuts when I could have been driving a Porsche all these years instead!

[xxd09]

You need expert advice -probably an IFA
You have time to look and ask about to find one you could trust
Go on a fees only /hourly rate basis
Get his advice and then decide and do it yourself
Nice problem to have
xxd09

[TUK020]

Just joined the forum. Experienced investor but pensions are a whole new level of sh*te to get one's head around. Distressing to learn that I'm not out the woods with one LTA test at crystallisation. Our situation:

I stopped working 5 years ago, locked in an LTA of £1.25m. WIfe earns >£300k and money is no major worry though nobody wants to give to the taxman. However, I got lucky 2 years ago putting masses into rampant BG funds so now both of us are close to our LTAs. She intends to retire next year and at that point, assuming she doesn't continue working, we'd both crystallise and move into drawdown.

I'm 59 now with a DB projected at £12.5kpa at 60 and £850k in DC pots and an LTA of £1.25m FP2016.
She's 55 now with DC pots of £958k and just the current LTA of £1.073m.
Between us we have £842k in ISAs, full £100k in PBs, £70k in cash, mort free house worth £1.6m and two kids both 1st year uni.
Our only tentative plan is to sell the house (way too big for 2) and have two smaller properties, one in the Canaries and put that in the kids names as some sort of IHT avoidance assuming we both live a few years.

Q1 - Daft as it sounds what do we have to do to crystallise - I mean the process - do I contact the taxman or just the pension companies? All material is around the choices, not the process!

Q2 - How is my DB pension valued towards my LTA - on 20x the per annum at the date of crystallisation or the transfer value (£422k)?

Q3 - Either way, it's looking like we are both close to LTA and the info that growth will be judged again at 75 is crap to say the least. My initial plan had been to leave all capital and live off a drawdown rate of 3.5% which should allow for decent growth assuming I can continue to manage my funds and pick winners long-term and also stay in base rate tax. Also we'd have invested the ISAs in high yielding investments (6-7%) until the state pensions kicked in and assume no or -ve growth. Now it seems like taking a larger pension drawdown might be better in light of LTA @ 75 judgement issues? I had no idea on whether to take the 25% TFA but now it seems that could be a good idea? Anyone any pointers?

BTW, we'll consult an IFA too for this stuff but I am very very wary. Also, I'm being flippant about paying the taxman! Don't mind paying my share though its a kick in the nuts when I could have been driving a Porsche all these years instead!

Good position to be in.
I would second the advice to seek professional help, but make sure it is on a fee basis, a lot of IFAs will suggest a %basis.

One thought is that you perhaps should think of pitching your withdrawal rate from the pension(s) as getting it to the tax efficient level (keep total taxable earnings/pensions at a whisker under 50k each), and then using your taxable investments then ISAs for any further funds needed. When the state pension kicks in (check you have maxed out your NI contributions), gear back the SIPP withdrawals to stay under the higher rate tax band.
The rump of your SIPP when you die can be left to your kids, outside of your estate - very IHT efficient.

[scrumpyjack]

I would just add a point about the proposed Canaries property in the kids name. Be careful that you do not fall foul of the reservation of benefit rules. For example if you go and stay in it the gift could be ineffective for IHT.

[ursaminortaur]

Just joined the forum. Experienced investor but pensions are a whole new level of sh*te to get one's head around. Distressing to learn that I'm not out the woods with one LTA test at crystallisation. Our situation:

I stopped working 5 years ago, locked in an LTA of £1.25m. WIfe earns >£300k and money is no major worry though nobody wants to give to the taxman. However, I got lucky 2 years ago putting masses into rampant BG funds so now both of us are close to our LTAs. She intends to retire next year and at that point, assuming she doesn't continue working, we'd both crystallise and move into drawdown.

I'm 59 now with a DB projected at £12.5kpa at 60 and £850k in DC pots and an LTA of £1.25m FP2016.
She's 55 now with DC pots of £958k and just the current LTA of £1.073m.
Between us we have £842k in ISAs, full £100k in PBs, £70k in cash, mort free house worth £1.6m and two kids both 1st year uni.
Our only tentative plan is to sell the house (way too big for 2) and have two smaller properties, one in the Canaries and put that in the kids names as some sort of IHT avoidance assuming we both live a few years.

Q1 - Daft as it sounds what do we have to do to crystallise - I mean the process - do I contact the taxman or just the pension companies? All material is around the choices, not the process!

You just contact the pension company for each pension that you want to crystallise. For a DC scheme you probably want to sell enough of your holdings in the pension pot to cover the 25% tax free lump sum. It is possible that the pension company may do this for you if you haven't done it before hand but if you are going into drawdown it is better if you decide what to sell rather than having them decide. With DB pensions, see below, it may well be a good idea not to take the 25% tax free lump sum but for a DC scheme there are few circumstances where it would make sense to forgo the tax free lump sum.

Q2 - How is my DB pension valued towards my LTA - on 20x the per annum at the date of crystallisation or the transfer value (£422k)?

The DB pension will be valued for the LTA test as

20 x initial annual pension + any tax free lump sum

Many older DB pensions will come with an automatic lump sum often of 3 x annual pension though the exact details vary scheme to scheme. In a few cases this can even be for more than the normal 25% and special rules were provided to allow for this. However in most cases this automatic lump sum will be for less than 25% and in more modern schemes there may be no automatic lump sum. Legally you have a right to take a 25% tax free lump sum so can if you wish commute some of your annual pension to produce that lump sum. A commutation rate is used to convert some annual pension into the tax free lump sum ie for each £1 of annual pension given up you get £x of tax free lump sum. Unfortunately the commutation rates are generally pretty poor value so you may well be better off not taking the full 25% tax free lump sum (or any tax free lump sum if your DB scheme does not provide an automatic lump sum).

A transfer value is only of interest if instead of taking the DB pension you wish to transfer it to a DC scheme often a SIPP.
If the transfer value of the DB scheme is more than £30,000 then you will need to pay for advice as to whether the transfer is a good idea. Even if the advice is not to transfer then legally you have the right to insist on a transfer however you would need to check whether the pension provider you want to transfer to will accept such insistent clients as many are now refusing to do so.

Q3 - Either way, it's looking like we are both close to LTA and the info that growth will be judged again at 75 is crap to say the least. My initial plan had been to leave all capital and live off a drawdown rate of 3.5% which should allow for decent growth assuming I can continue to manage my funds and pick winners long-term and also stay in base rate tax. Also we'd have invested the ISAs in high yielding investments (6-7%) until the state pensions kicked in and assume no or -ve growth. Now it seems like taking a larger pension drawdown might be better in light of LTA @ 75 judgement issues? I had no idea on whether to take the 25% TFA but now it seems that could be a good idea? Anyone any pointers?

BTW, we'll consult an IFA too for this stuff but I am very very wary. Also, I'm being flippant about paying the taxman! Don't mind paying my share though its a kick in the nuts when I could have been driving a Porsche all these years instead!

Each LTA test will use up a percentage of the LTA limit at the time of that test.

The LTA tests at age 75 just apply to what is left uncrystallised and for crystallised pots in drawdown any growth which has occurred since crystallisation which is still in the pot. There is no additional age 75 test on a DB pension after it has been taken. For a DC pot whether you exceed the LTA at age 75 is pretty much a voluntary action since all you need to do to avoid it is to crystallise your pension(s) early enough to avoid breaching the LTA limit and then make sure that you have removed the growth from the pots in drawdown before you reach 75. The test that is carried on drawdown growth at age 75 is just

Value of pot at age 75 - ( value of pot when crystallised - tax free lump sum taken)

Drawdowns from crystallised pots are not tested against the LTA so can be used to make sure that this test doesn't breach the remaining percentage of the LTA limit. Though you will obviously have to pay tax at your marginal rate on the amounts drawndown this will be less that the charge for exceeding the LTA limit.

[genou]

I stopped working 5 years ago, locked in an LTA of £1.25m.

I'm 59 now with a DB projected at £12.5kpa at 60 and £850k in DC pots and an LTA of £1.25m FP2016.

So your LTA amount is (12.5*20) + 850 = 1,100. You're going to have manage your pension actively. Probably crystallise now, or soon, to use up the bulk of your LTA, then go into drawdown to hold the LTA charge down. But don't change your investment strategy on the DC pot - taxed profits are better than no profits.

She's 55 now with DC pots of £958k and just the current LTA of £1.073m.

No chance that she won't exceed the allowance. But on her income level it's close to irrelevant.

Between us we have £842k in ISAs, full £100k in PBs, £70k in cash, mort free house worth £1.6m and two kids both 1st year uni.

If you fund them through uni that's not a gift for IHT purposes [ education - fees, living expenses, the lot ] and will spare them graduate tax for years.

Our only tentative plan is to sell the house (way too big for 2) and have two smaller properties, one in the Canaries and put that in the kids names as some sort of IHT avoidance assuming we both live a few years.

I see reservation of benefit has already been mentioned. That's noise in this situation. Have a google for POAT ( Pre-owned Assets ). You'll get hammered.

Q1 - Daft as it sounds what do we have to do to crystallise - I mean the process - do I contact the taxman or just the pension companies?

Pension companies.

Q2 - How is my DB pension valued towards my LTA - on 20x the per annum at the date of crystallisation or the transfer value (£422k)?

20 * payment or any lump sum take plus ( 20 * remaining payment )

Q3 - Either way, it's looking like we are both close to LTA and the info that growth will be judged again at 75 is crap to say the least. My initial plan had been to leave all capital and live off a drawdown rate of 3.5% which should allow for decent growth assuming I can continue to manage my funds and pick winners long-term and also stay in base rate tax. Also we'd have invested the ISAs in high yielding investments (6-7%) until the state pensions kicked in and assume no or -ve growth. Now it seems like taking a larger pension drawdown might be better in light of LTA @ 75 judgement issues? I had no idea on whether to take the 25% TFA but now it seems that could be a good idea? Anyone any pointers?

BTW, we'll consult an IFA too for this stuff but I am very very wary. Also, I'm being flippant about paying the taxman! Don't mind paying my share though its a kick in the nuts when I could have been driving a Porsche all these years instead!

One plan is to do flexible drawdown on the pensions to control the LTA hit, and then at 75 switch to drawing down the ISA and leave the pension funds as ( currently ) IHT exempt pots to pass down to your children.
Do not talk to to an IFA, you do not need that sort of advice. Find a Financial Planner with the full gamut of qualifications ( i.e including pensions ) if you want advice in that direction. Otherwise talk to a tax advisor.

I hadn't seen ursaminotaur's post. Too much to re-edit for that, so happy reading.

[r21442]

Thanks, folks - so many considerations, so many useful pointers.

On the paid advice thing. I did pay >£5k, five years ago when I took redundancy. Partly because my employer paid a tiny proportion, partly to satisfy the other half. For that he told me what I already knew. Thick glossy production mind you. However, 50% of his pitch was geared around trying to sell me an IHT insurance policy that would cost £140k in projected premiums to protect £570k in projected liability. All based on a casual end of meeting 'do you want me to mention something about IHT'? Wow! I'm not saying the advice was necessarily wrong or fiscally prudent but to make it without first ascertaining if I'd be happy to forego £324 a month whilst I was alive or asking me if I had any other IHT avoidance measures planned was negligent and the sort of stuff that unfortunately gives the industry a bad rep.

At the time they also were wanting a further £8k to pay insurance to cover any advice given on my DB. Politely declined.

The wife is a lawyer and I believe the services of KPMG who do her and her partnerships accounts will be part of the leaving package. However, it might be a bit late in the day given we'll only get it once she gives 6 months notice. Also her profit share is a year in arrears so will be earning for a year after stopping work. Just more complication! This is why I'm on here gaining more knowledge to be able to even ask the right questions!

On the property thing, I think we should be OK. The intent is just to stay 2-6? A bolt hole when the weather is rubbish for all of us. Easy access and easy weather year round assuming we get back to normal times. We just don't know what is our life going to look like in retirement hence the doubt. I think the taxman will struggle to prove any reservation of benefit though obviously we'll ask about formalising that. The kids ought to be thinking ahead about their own liabilities through that 50% ownership but that's not for here.


Genou, I don't share your certainty that my wife will breach her LTA by next year retirement? Currently £958k pot and only putting in £10kpa. No idea where equities are heading or our fund selection but you are correct in that there's decent chance it might be close? You are rightly saying taxed growth is better than no growth. Ursa saying that no growth would avoid the 75 LTA issue I guess with the implicit assumption that low growth investments will also be lower risk and so maybe make life less financially stressful? Guess I'll have a while to ponder that one!

Good shout on POAT. I see examples online which are kind of what we want to do. Goes back to maybe we have to document and pay the kids fair costs to use the property and cover expenses e.g. pool heating. And good shout on options to an IFA. The KPMG person will be a tax specialist anyway so I think we'll get 'free' advice i.e. paid out her partnership's profit share anyway.

Brilliant stuff guys. Lots for me to ponder and good pointers where I need to be concerned! Love forums for getting opinions to consider. I know we are privileged though worked damned hard for it and we intend to enjoy it. MIght upgrade that Porche to a Lambo?

[scrumpyjack]

Yes, once when I had a Will done the solicitor tried to push expensive IHT planning at me. I said no.

The trouble with all these IHT planners is that they are totally focussed on minimising the ultimate family tax bill, but that bit is relatively simple and any intelligent person could get a pretty good idea of what they should do by reading the right books etc.

The difficult bit is the whole family angle – Who should get money when, what are they likely to do with it, will it help them or ruin their lives and so on. All those issues need thinking about by you, not the tax planner, and can be very very difficult if your offspring are not all healthy, clever, sensible individuals with stable marriages.

[genou]

Genou, I don't share your certainty that my wife will breach her LTA by next year retirement? Currently £958k pot and only putting in £10kpa. No idea where equities are heading or our fund selection but you are correct in that there's decent chance it might be close

You may well be right that she can avoid LTA. I unconsciously went with the common constraint in these parts that pension withdrawal should be held down so as not to pay higher rate tax. But that's wrong in your wife's situation - better to pay 40% income tax and avoid an LTA charge.

[ursaminortaur]

Genou, I don't share your certainty that my wife will breach her LTA by next year retirement? Currently £958k pot and only putting in £10kpa. No idea where equities are heading or our fund selection but you are correct in that there's decent chance it might be close? You are rightly saying taxed growth is better than no growth. Ursa saying that no growth would avoid the 75 LTA issue I guess with the implicit assumption that low growth investments will also be lower risk and so maybe make life less financially stressful? Guess I'll have a while to ponder that one!

No, I'm definitely NOT saying go for no growth or low growth investments. What I am saying is that you can avoid breaching the LTA limit at age 75 by using drawdown to remove the growth from the crystallised pot before age 75. You will have to pay tax on the larger drawdown withdrawals but that will be less than the LTA excess charge you would have if you left the money in the pension pot and breached the LTA limit.

What you do with the extra money this will give you outside the pension is upto you. However if you want to minimise your IHT estate then one option since pension payments are income would be to regularly give it to your kids as gifts out of surplus income during your lifetime.

[Joe45]

I share some of these challenges, although I’m nothing like as flush as the OP.

Having settled on an asset allocation of 70:30 equities : bonds I have put as much of the latter into my SIPP to minimise the likelihood of breaching the LTA. The balance is in ISAs and in the wife’s name.

I’m starting my retirement journey drawing £16,667 per year as UFPLS in order to use my personal allowance. The next intellectual challenge will be to decide whether to draw more and pay some tax at 20% to avoid higher rates in the future.

[airbus330]

The next intellectual challenge will be to decide whether to draw more and pay some tax at 20% to avoid higher rates in the future.

You are right and thank you for reminding me to action the next UFPLS for April!