'Bed & Pension & UFPLS'
benjaminfabi
Moderator
Hi,
Just wondering if anyone is actually doing this and what, if any, practical issues are being faced.
68 yr old client has £8,500 state pension each year. He has £250,000 to invest for capital growth/income, looking to draw down about £15k pa to supplement the SP. Keeping about £40k in cash plus the next year's income.
As he has unused personal allowance it seems silly not to do the action in the title of this thread. The £250k is going onto a platform, Transact in this case. Plan would be to bed and pension £2,880 into cash, and then UFPLS the lot when the tax-relief lands. The whole payment will be tax-free within the personal allowance, he'll have the personal savings allowance, dividend allowance and the starting rate of 0% for savings to soak up most of the rest. Plus obviously bed and ISA, and when he starts drawing income it will be from the GIA to make use of CGT exemption until it's just coming from the ISA.
I'm concerned that I'm missing something devastatingly obvious that ruins the plan.
Just wondering if anyone is actually doing this and what, if any, practical issues are being faced.
68 yr old client has £8,500 state pension each year. He has £250,000 to invest for capital growth/income, looking to draw down about £15k pa to supplement the SP. Keeping about £40k in cash plus the next year's income.
As he has unused personal allowance it seems silly not to do the action in the title of this thread. The £250k is going onto a platform, Transact in this case. Plan would be to bed and pension £2,880 into cash, and then UFPLS the lot when the tax-relief lands. The whole payment will be tax-free within the personal allowance, he'll have the personal savings allowance, dividend allowance and the starting rate of 0% for savings to soak up most of the rest. Plus obviously bed and ISA, and when he starts drawing income it will be from the GIA to make use of CGT exemption until it's just coming from the ISA.
I'm concerned that I'm missing something devastatingly obvious that ruins the plan.
Benjamin Fabi
Comments
The benefit being the £720 tax relief on the contribution as income / capital would potentially be tax free if just drew straight from GIA (rest of PA, PSA, 0%, DA, CGT AE etc would cover).
So as long as the cost of the pension wrapper is less than the tax relief - he'll be quids in.
If all assets already on Platform, then Transact only charge the £20 per quarter for the SIPP wrapper (from memory) - so looks good to me.
Cannot see an obvious advantage either way on future use of CGT AE - seems a potentially pretty level playing field.
You could have some issues practically. Most of our pensions are held with Transact and you might find that the taxable portion of the UFPLS gets hit with emergency tax, which is a bit annoying. I also imagine you'd need to leave at least some cash in the pension to keep the wrapper open and cover ongoing fees (can confirm it's still £20 a quarter, plus usual platform fees), so the client wouldn't be able to have the full £3,600 out - although it wouldn't be far from it.
Might be worth contacting Transact re: the tax situation but that's all off the top of my head!
UFPLS M1 tax reclaim online form.
The taxation of the income portion has nothing to do with the choice of provider. It is an HMRC requirement introduced at the start of this tax year. It may not be at the emergency level if the provider gets an appropriate tax code; given that even then a tax reclaim is going to be needed just accept that it's a cash flow issue - which effectively is a delay in the client getting their hands on the tax relief part of the proposal.
The tax reclaim is not complex or time-consuming; OK it may take a while for HMRC to administer it but it's still effectively 'free money'.
Transact would not be a good choice; I would have thought someone like Aviva platform might be better - no £20 fee and can be held in cash and would only incur a portion of their 0.3% annual fee. Probably cheaper than trying to sue a stakeholder pension (and avoids the issue of a money market fund).
No doubt someone will point out an even lower cost option in the platform world.