Tax Systems Share Discussion Threads

[miata] 03/5/2014 11:01

What a lot of questions!!! Firstly may I say my knowledge is centred on tax accounting rather than pensions, so bear with me.

2) Are these options correct? I believe so.

Is that correct? Yes, assuming zero other income.

2b) Amount crystallizes on initial drawdown (ie fixed).

Is the PAYE structure the same as described in Option 2(a)? Yes. Yes.

Yes.

In practice your pension provider will most likely want to make considerable charges for doing anything. This may include forcing you to pay for financial advice, perhaps even each time you make a substantial withdrawal, thus the simpler scheme the better. Thus partial drawdown may not prove cost effective.

I suggest you initially take the whole 25% tax-free and put as much as you can in an ISA over the following years.

[scottishfield] 03/5/2014 10:13

MIATA; A question/scenario if I may;

SIPP

1. I am approaching retirement & will most probably go the 'income drawdown' route. (I currently do not have an additional qualifying £12,000 to (currently)allow Flexible Drawdown).

2.As regards the tax free element;
a) If I wanted to take the total of 25% tax free straight away, I understand I can do that.
b) If I only want to take a portion of that 25% tax free, I can do that also I believe.
c) If I want to vary the amount of tax free cash taken year by year, and perhaps also the amount of taxable income taken year by year,I understand that is possible.

Are these options correct? If so, then first taking/considering option 2(a);

The money remaining is then taxable income. E.G. If I were to drawdown say £25k per year, I am assuming that as PAYE is applied at source, & with no other issues/complications elsewhere, the breakdown is, (a) personnal allowance of £10k tax free, and (b) the remaining £15k taxed at 20%, leaving a net of £12k. (a) + (b) = income nett of tax of £22k. Is that correct?

Option 2(b). I am unsure of how this might work. If, for example, you only drew down 25%, 10% or whatever of the original tax free amount, how in practise would that work and what effect would it have, if any, on the remaining tax free amount, not yet drawn down. I.e. if the pot of remaining invested money goes up or down, does the remainder of the tax free amount also go up or down, or is it fixed as in 2(a)above at a point before drawdown is entered into at all?

Is the PAYE structure the same as described in Option 2(a)?

Eg, In year 3 I want to take 'some' remaining (of the original) tax free cash out & then take only the first £10k of my taxable income out (thereby using up my personal allowance). Do I then pay no tax that year?

Option 2(c): A variation of 2(b).

I hope I have not totally confused you.

And finally, if I were to wait until April 2015, would anything change?

Thanks in advance.

[goatherd] 02/5/2014 16:51

Thanks Miata - most helpful!

[miata] 02/5/2014 12:10

No, but you should be able to fudge it! Its really gifts that don't reduce your standard of living. You (well your executors really but I hope you will leave them annual statements) will need to provide several years of statements to show your income exceeded your normal living expenses. By the way it is "normal gifts" meaning regular eg by standing order. HMRC quote: "The dictionary definition of 'normal' includes standard, regular, typical, habitual or usual."

[goatherd] 02/5/2014 12:06

Miata,

There is an exemption from Inheritance Tax on gifts made "out of income" - but does that also apply to gifts made from capital gains? I suspect not - but worth a sniff!

I presume it mainly depends on how you define "income". How about gambling winnings?

[miata] 28/4/2014 14:44

Bernie's sweetheart deal

[mirandaj] 25/4/2014 08:00

For interest

[miata] 21/4/2014 09:04

Legislation requiring companies to declare publicly their true owners is set to be included in the Queen's Speech in a crackdown on tax evasion and money-laundering, said Business Secretary Vince Cable.

[badtime] 19/4/2014 18:57

If u have modest savings then locking them into an annuity at current low rates would seem to not be the right things to do imho ...you'd need to make them work even harder

[zastas] 19/4/2014 16:36

Annuities are good for those with modest retirement savings. But you have to shop around here too.

They are currently such poor value solely because of the BOE's Keynesian policies and financial repression, once again favouring all debtors over savers; once, yes once normal service resumes an Annuity will be good value, especially near the next base rate peak.

[scottishfield] 17/4/2014 21:20

my heirs, well you don't have to spend it all on an annuity. You could keep a % in high yielders/cash/ interest bearing or whatever your strategy is/was. Just an option; each to his/her own.

[2baffled] 17/4/2014 21:09

At 75, one may consider the George Best 'end-game' rather than an annuity? ......

"I spent a lot of money on booze, birds and fast cars.
The rest I just squandered".

George Best.

;0)

[miata] 17/4/2014 19:51

"the number becoming 75 who have opted not to take annuities will only be 25% of all becoming 75."

Au contraire, the number becoming 75 who have opted not to take annuities may rise to 84% of all becoming 75.

New research from accountantS PwC has found that only 16 per cent of those aged between 50 and 75 now plan to buy an annuity.

I agree with scottishfield that an annuity might become attractive at 75, if you are still healthy and forsee many further years. Also hopefully your funds have been invested and kept place with inflation and you are not so worried about future inflation as you have fewer years left.

[goatherd] 17/4/2014 19:37

And what about your heirs?

[scottishfield] 17/4/2014 19:13

on the contrary goatherd, an annunity might be very attractive at 75. eg you have inc drawdown from retirement to 75, your capacity for/interest in managing your own pension wanes & you cash it, or some of it in for an annunity. Attractive to me anyway. All imo.

[goatherd] 17/4/2014 18:57

Sure - but the number becoming 75 who have opted not to take annuities will only be 25% of all becoming 75. And as they didn't take an annuity earlier they are unlikely to want want once they get to 75. And, of course, anyone already 75 probably has taken an annuity already.

[miata] 17/4/2014 16:06

Au contraire, the stock over 75s is expected to double in the next 30 years.

The number of centenarians in the UK has nearly quadrupled since 1981.

[goatherd] 17/4/2014 11:52

true! But the stock of over 75s [and there can't be many] will not be replenished as it is depleted.

[miata] 17/4/2014 11:41

Some annuities are bought by people over 75.

[goatherd] 17/4/2014 11:28

I wonder why not an 84% decline?

[miata] 17/4/2014 11:07

New research from accountantS PwC has found that only 16 per cent of those aged between 50 and 75 now plan to buy an annuity. The firm said that this could lead a 75 per cent decline in the UK annuity market.