Drawdown

[The Central Scrutinizer]

I get paid a monthly sum from a drawdown account.Does any anyone know how much i would be taxed(percentage) if i decided to take the whole pot out?
I've tried looking online but couldn't getting any results.Maybe i was wording it wrong?

 

[T4tomo]

Are you taking pensions?

if you have drawn down 25% of your pension pot into regular account and are just taking from that, nothing.

if you are drawing down from your pension pot, then when you get to 25% it starts to get taxed, but if you are taking it in stages then often you get taxed on 75% of whatever you withdraw as you run out of reference points for what is the 25% tax free bit so they give you 25% per withdrawal.

You haven't really given enough information though and you are best off asking the institution you have the account with

 

[The Central Scrutinizer]

Are you taking pensions?

if you have drawn down 25% of your pension pot into regular account and are just taking from that, nothing.

if you are drawing down from your pension pot, then when you get to 25% it starts to get taxed, but if you are taking it in stages then often you get taxed on 75% of whatever you withdraw as you run out of reference points for what is the 25% tax free bit so they give you 25% per withdrawal.

You haven't really given enough information though and you are best off asking the institution you have the account with

Yes sorry about the lack of information.
My wife and i are both retired and i put my private pension in a financial management company.So i have a pot and i am paid a monthly drawdown from that.
We have been with this company for forty six years and they are all above board and registered with the FCA.
It's just that the stock market hasn't been doing very well lately plus you have to pay fees to the company(you don't get anything for nothing!).
So it was just me wondering that if you took out the whole pot how much percentage tax would i pay(I have a feeling it would be forty percent) and would that last more if we invested it somewhere else.

 

[fossyant]

Ask them, but I suspect you'll get whacked with full tax as it's strictly a pension pot.

 

[All uphill]

I am not a financial adviser.

A couple of questions to think about:

Do you have a clear plan for what you want to do with the money?
You seem to have been happy with this company for a long time; what has prompted you to think of changing now?
How financially astute would you say you are?

If you are relying on this money make sure you fully understand your options, the risks and motivations.

 

[T4tomo]

Yes sorry about the lack of information.
My wife and i are both retired and i put my private pension in a financial management company.So i have a pot and i am paid a monthly drawdown from that.
We have been with this company for forty six years and they are all above board and registered with the FCA.
It's just that the stock market hasn't been doing very well lately plus you have to pay fees to the company(you don't get anything for nothing!).
So it was just me wondering that if you took out the whole pot how much percentage tax would i pay(I have a feeling it would be forty percent) and would that last more if we invested it somewhere else.

You need to work out / ask whether you have bought an annuity - in which case it will contribute to your taxable income

or you are doing monthly draw downs, in which case its most likely that 25% of each amount is tax free and 75% is taxable

(both the above are subject to your annual tax free allowance, cognoscente of other income source).

If you still have a remaining pot measure in £ total, then its likely the latter as an annuity is a monthly amount for life. you talk of it not doing that well, so I assume it is indeed the latter.

The 18months or so have been extremely volatile for a whole heap of reasons - china shut downs, energy crisis, ukraine, liz truss, interest rate rises, but you measure stock market / portfolio performance over a number of years.

If you take it all out now and manage it yourself, what makes you think you could do better than a collection of professional fund managers (less fees).

if it is as I think, 75% will be taxable in the tax year you withdraw it, presumably taking you into 40% , rather than using up your annual tax free allowance (and 20% rate depending on amounts) , by dribbling it out monthly.

In summary, daft idea, better off chatting with your FA about what fund choices its in.

 

[The Central Scrutinizer]

@T4tomo

You need to work out / ask whether you have bought an annuity - in which case it will contribute to your taxable income

No it's not an annuity.

If you take it all out now and manage it yourself, what makes you think you could do better than a collection of professional fund managers (less fees).

I don't and i never said i could..
My initial query was simply about how much tax i would pay.

 

[T4tomo]

I don't and i never said i could..
My initial query was simply about how much tax i would pay.

you could probably transfer it to another pension fund manager tax free, but then you can also switch funds you are invested in with your current manager or change your risk profile on what fund of funds etc its in.

 

[PaulSB]

I get paid a monthly sum from a drawdown account.Does any anyone know how much i would be taxed(percentage) if i decided to take the whole pot out?
I've tried looking online but couldn't getting any results.Maybe i was wording it wrong?

My understanding is this would be classed as annual income and you would pay income tax accordingly:

Tax Free Allowance £12570
£12571 to £50270 taxed at 20%
£50271 to £150000 taxed at 40%
Over £150000 at 45%

Could be a very expensive exercise whatever the amount as the pain will be relative to what you have.

I've just got home from my annual review with my FA. Very interesting four hours.

 

[alicat]

Please don't take the whole lot in one go. It's treated as annual income and you will get stung for a lot more tax than drawing it down gradually.

And please don't do it when the value is low. Wait for it to go up again.

And please don't do it when you don't have a better plan for how to invest it yourself.

 

[rogerzilla]

Drawdown was a way for the taxman to profit from people who couldn't resist the temptation, I think.

 

[The Central Scrutinizer]

My understanding is this would be classed as annual income and you would pay income tax accordingly:

Tax Free Allowance £12570
£12571 to £50270 taxed at 20%
£50271 to £150000 taxed at 40%
Over £150000 at 45%

Could be a very expensive exercise whatever the amount as the pain will be relative to what you have.

I've just got home from my annual review with my FA. Very interesting four hours.

Yes funny enough we had our annual review yesterday with our financial advisor and that's what spooked me.
He said to us that the drawdown plot could be depleted in 12 to 15 years unless we reduce the monthly drawdown pay-out(which is possible) although we do also have a tax free bond as back up.
It was stewing with me so i phoned him back today and he said he was sorry he alarmed us and the 12 to 15 years would only occur in the worse scenario.

 

[All uphill]

The old rule of thumb was that (over the longer term) you could take 4% of your equities invested pot every year without the pot running out.

 

[rogerzilla]

The old rule of thumb was that (over the longer term) you could take 4% of your equities invested pot every year without the pot running out.

An inflation-proofed annuity at 65 would give you more than that with no worries (although it definitely dies with you, whereas there might be something left in a deawdown pot for your feckless offspring).

 

[brucers]

As has been said, first 25 per cent is tax free. The rest is taxable but if this is your only income then you can withdraw £12570 per annum without being taxed as this is within your individual tax allowance (it is basically the tax free element you got when you were earning). It becomes a different matter when you start receiving your state pension because this then is included in your income calculation.
Unless you desperately need the cash, do not take it all at once.
Regarding the stock and shares aspect you may want to consider keeping it as a cash pot within in the SIPP, as this way you do not get hit with stock market losses, equally you do not get the gains either. As a cash pot, many providers give some interest. You are, allowed to transfer your SIPP if your current one does not meet your requirements but you need to check carefully if you go down that route for pro's and con's. How do I know all this.....because this is what I have been looking into the last 6 months and have worked it so I can take all my SIPP free of any tax over the next 5/6 years (because I have retired early).