AJ Bell SIPP withdrawal without tax free sum

[Degsy67]

My wife just reached 55 so she can access her AJ Bell SIPP. She has no other sources of income this tax year. We don’t need to drawdown a lot from her SIPP this tax year as between us we have other sources of tax free income. It appears sensible however to withdraw an amount which is equivalent to her personal income tax allowance, £12,570, so that all of this amount can be taken tax free.

Just had a look at the AJ Bell website to plan the withdrawal later in the year. We are planning on taking a small amount (£100) to trigger the request for a tax code. This will be followed later in the year by an additional withdrawal for £12,470 when AJ Bell has her tax code. Based on what happened with my own withdrawal this year there will still be some emergency tax paid but this minimises the tax refund we will need to request later via a P55.

When we look at the options presented by AJ Bell however, I’m not sure we can do what was our original plan. She can take a tax free lump sum and move some of her pension into drawdown. The crystallised amount remaining is then taxable as she draws down. She doesn’t need access to her tax free lump sum this year however and we thought it would be better to save this for some time down the line when her portfolio has recovered a little.

The other option is an UFPLS withdrawal but 25% of this is tax free so to fully use her personal income tax allowance she would need to withdraw £16,760 (£4,190 / 25% of which is tax free with £12,570 / 75% being taxable).

There doesn’t appear to be an option with AJ Bell to crystallise £12,570 and then to withdraw it all subject to income tax (unless I’m missing how to do this).

I appreciate that she could use the UFLS option and then reinvest the £4,190 not required into her ISA so that this can continue to grow tax free. She could also take a larger one off tax free lump sum (eg, £20k), put all of this into her ISA and then drawdown on the crystallised funds. This appears less sensible however from an inheritance tax planning perspective.

Any thoughts? Has anyone else found a way to tackle this specifically with an AJ Bell SIPP or is this simply a feature of their withdrawal options?

Degsy

[SebsCat]

There doesn’t appear to be an option with AJ Bell to crystallise £12,570 and then to withdraw it all subject to income tax (unless I’m missing how to do this).

I'm just going from memory, but I thought there was an option to state how much of the tax free amount you want to take. It's not on the screen where you choose to move a lump sum to drawdown but the next screen (or an even later one).

I've got to ask, why not take the tax free sum? If you don't take it then there is no option to take it later on (for the amount moved to drawdown, it's obviously still available for the uncrystallised amount). There is also no advantage to not taking it - if your wife moves £12,570 to drawdown and then withdraws it, she will have no tax to pay whether she takes the tax free amount or not assuming no other income. NB: if she does take the TFLS then it will reduce any tax taken off and needed to be reclaimed from the taxable withdrawal.

[swill453]

Any thoughts? Has anyone else found a way to tackle this specifically with an AJ Bell SIPP or is this simply a feature of their withdrawal options?

It's not just AJBell, it's basically the definition of "crystallization" that you take a tax free lump sump.

You can't drawdown without doing so.

UFPLS would seem to be your best bet, to minimise the amount of inconvenient tax free cash you get in your hands

Scott.

[Laughton]

Not as much of a help as you were looking for, I know, but you can always take advantage of the Marriage Tax Allowance (transfer 10% of your wife's personal allowance to you). Backdateable too I think, if she had no or low earnings in previous years).

As the advert says - "Every Litle Helps".

[DiviLuvva]

Regarding "taking a small amount (£100) to trigger the request for a tax code" I suggest you don't do that because that 'benefits crystallisation event' will incur a fee. IMHO when you've decided what to do it would be better to have one BCE and reclaim any income tax paid.

[SteelCamel]

It's not just AJBell, it's basically the definition of "crystallization" that you take a tax free lump sump. You can't drawdown without doing so.

It's my understanding that you can choose not to take the tax free lump sum - or indeed to take less than the maximum. It's just that in 99.9% of cases there's no reason not to. It's "use it or lose it" - if you don't take it at the time of crystallization the option is lost forever - and not taking it just means paying more tax for no benefit.

There may be the 0.1% of cases in which taking it would have some strange effects on the rest of your finances that cost you more elsewhere than the tax saved, and in that case you do have the option not to. But as it's such an unusual thing to do, pension providers may not make it easy to do - or support it at all.

[SebsCat]

Regarding "taking a small amount (£100) to trigger the request for a tax code" I suggest you don't do that because that 'benefits crystallisation event' will incur a fee. IMHO when you've decided what to do it would be better to have one BCE and reclaim any income tax paid.

AJ Bell don't make a charge for this.

[Degsy67]

Thanks to everyone for the input. I think we’ll go the UFPLS route and take more than we originally intended.

Degsy