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25% Tax Free - What to sell?

Including Financial Independence and Retiring Early (FIRE)
taken2often
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Re: 25% Tax Free - What to sell?

#325025

Postby taken2often » July 10th, 2020, 6:22 am

As you appear to have no desperate need of the cash I would leave it and that would be your reserve.

ISA is at greater risk than a SIPP. You would be transferring from IHT free. Although a wife can now take over an ISA

There is little chance of the 25% lump sum disappearing. It is a treasury con to make you jump into it thinking you are getting some sort of benefit,this in turn stops you asking the obvious question is it a good deal. It is not so they are not going to change it.

What would be a good deal would be for you to pay them back 20% of the grossed up fund and pay no tax on the pension. This could be as a pension or any lump sum you wanted.

Think about this you work for 40 years you get 20% tax relief 80% of the fund is yours, then you pay tax on your own money for the rest of your life.
A bargain

terminal7
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Re: 25% Tax Free - What to sell?

#325076

Postby terminal7 » July 10th, 2020, 9:57 am

There is little chance of the 25% lump sum disappearing. It is a treasury con to make you jump into it thinking you are getting some sort of benefit


Clearly we disagree - however con or no con, having already investments in a SIPP it would be a shame to 'lose' the 25% TFLS in the event of the day of reckoning later this year. I agree the likelihood of it happening is minor - but have no wish to risk losing it when it is possible to return a proportion of the monies to tax free envelopes. The rest I need for income in the current FY as well as new funds into the Bank of Mum and Dad.

T7

ursaminortaur
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Re: 25% Tax Free - What to sell?

#325089

Postby ursaminortaur » July 10th, 2020, 10:20 am

taken2often wrote:As you appear to have no desperate need of the cash I would leave it and that would be your reserve.

ISA is at greater risk than a SIPP. You would be transferring from IHT free. Although a wife can now take over an ISA

There is little chance of the 25% lump sum disappearing. It is a treasury con to make you jump into it thinking you are getting some sort of benefit,this in turn stops you asking the obvious question is it a good deal. It is not so they are not going to change it.

What would be a good deal would be for you to pay them back 20% of the grossed up fund and pay no tax on the pension. This could be as a pension or any lump sum you wanted.


If the government were to allow you to pay to convert your pension to be tax free on withdrawal I think they would probably want more than 20%. After all they charge 55% to compensate for the excess tax-relief when paying the LTA excess out as a tax free lump sum. I'm not saying that they would charge that full 55% since that doesn't take into account that you currently get 25% of the pot tax free (upto the LTA limit) - but it would likely be more than 20%.

taken2often
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Re: 25% Tax Free - What to sell?

#325165

Postby taken2often » July 10th, 2020, 1:37 pm

The 55% tax is another con. For the majority there has been virtually no tax relief within a pension growth period. Just another punishment for success
LTA started at 1.8m to get the MP's to agree to this tax. Thinking this will be only the very wealthy. They built in the right to adjust this so now it effects thousands.

By the way there is now tax relief within pension growth. The new Dividend Tax that you do not need to pay in a pension

I understand that there is now an ISA Pension that that gets tax back, may be worth considering. This would be an ISA with more protection

I note that a few people use the term TFLS which is not used the legal term is PCLS. I think for a good reason. They are allowing you to take 25% of your own money. Remember 80% of the capital is yours.

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Re: 25% Tax Free - What to sell?

#325210

Postby Alaric » July 10th, 2020, 3:45 pm

taken2often wrote: Remember 80% of the capital is yours.


If it's derived from an employer contribution, you haven't been taxed on it yet and the employer has been able to offset the expenditure against Corporation Tax.

ursaminortaur
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Re: 25% Tax Free - What to sell?

#325218

Postby ursaminortaur » July 10th, 2020, 3:58 pm

taken2often wrote:The 55% tax is another con. For the majority there has been virtually no tax relief within a pension growth period. Just another punishment for success
LTA started at 1.8m to get the MP's to agree to this tax. Thinking this will be only the very wealthy. They built in the right to adjust this so now it effects thousands.

By the way there is now tax relief within pension growth. The new Dividend Tax that you do not need to pay in a pension

I understand that there is now an ISA Pension that that gets tax back, may be worth considering. This would be an ISA with more protection

I note that a few people use the term TFLS which is not used the legal term is PCLS. I think for a good reason. They are allowing you to take 25% of your own money. Remember 80% of the capital is yours.


The only ISA pension product which I know of is the LISA but it is limited to £4000 per year contributions (topped up with a 25% contribution by the government). You can only open a LISA if you are aged 40 or lower and the government top-ups stop at 50.

It is a bit of a strange product since as well as a retirement vehicle it is also aimed at those saving for a first time housing purchase. You can access the money at any time but unless it is for the purchase of a house or you are over 60 then the government will grab back the bonuses which were paid in.

https://www.unbiased.co.uk/news/pensions/lifetime-isa-vs-pension-the-showdown

When it was introduced it was suggested that it was a first step in George Osborne's plan to replace pensions with a fully functional pension ISA (which would have other features such as the ability to accept employer contributions) but that idea seems to have died a death.

As the link above concludes

In summary? The LISA is a great new ISA, and a welcome addition to the savings toolbox. But a pension, it ain’t.


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