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A question for people with a SIPP in draw down
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MarkSp
Posted: 08 March 2025 08:32:55(UTC)
#1

Joined: 02/02/2020(UTC)
Posts: 2,190

I just want to check I have this right

Assume I take £50k pa from my natural yield SIPP
and, assume the State Pension = The Personal allowance

I would 25% tax free on the £50k and then pay tax at 20% on 37500

So in the bank I would get 42500 + the State Pension

ISA income remains untaxed so that is whatever I chose it to be

Is it the £50K withdrawl that counts on the tax free limit or, the £12500 that is actually paid free of tax?

The max tax free withdrawl is s £268,275. so - can I run for 21 years or, is it only 5 years
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Fin Man V
Posted: 08 March 2025 08:41:19(UTC)
#2

Joined: 01/01/2025(UTC)
Posts: 11
Your calculations make sense to me Mark

On your assumptions you would have £42,500 after tax + the state pension

You would have 21 years of doing this under current tax regulations as far as I'm aware

I'm no tax expert though !!!
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John Bleke
Posted: 08 March 2025 09:07:55(UTC)
#3

Joined: 06/03/2023(UTC)
Posts: 246
Both I think. I took my entire 25% TFLS in one so I had to crystalize 4 times that amount i.e. 100%/25%. I presume it would work the same for you in that you would have to crystalize £50k every time you took £12.5k. This would carry on until you have crystalized £1,073,100 and you have had 25% of all of it. So 1,073,100/50,000 = 21.4 years. As above I'm only a mere Accountant and not a tax guru so happy to be corrected.
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Molly M
Posted: 08 March 2025 09:12:03(UTC)
#4

Joined: 23/11/2019(UTC)
Posts: 104

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Was thanked: 334 time(s) in 82 post(s)
On the personal allowance question - it’s the £12,500 state pension that counts towards the personal allowance tax free element.

The state pension is paid in full, without tax being deducted and HMRC adjust your tax code on your remaining income.

You are probably aware, but just in case - the first taxable withdrawal from a SIPP is usually taxed at 40% initially and you can claim back the difference from HMRC. So your initial payment would be more like £35,000 with £7,500 to claim back to get you back to the full £42,500

In my case it took about 3 months to get the overpayment back from HMRC, but then HMRC sent a tax code to ii for me and it was sorted at 20% for subsequent withdrawals.
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 |  Edit by user
3 users thanked Molly M for this post.
Sara G on 08/03/2025(UTC), Fin Man V on 08/03/2025(UTC), Jay P on 08/03/2025(UTC)
Gavin Featherleigh
Posted: 08 March 2025 09:57:37(UTC)
#5

Joined: 10/10/2017(UTC)
Posts: 58

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Was thanked: 92 time(s) in 38 post(s)
This overtaxation is about to be remedied.

Change to tax on pensions

From April 2025 we are improving how tax code information is used for those people who are new to receiving a private pension, so they pay the right amount of tax faster. We will automatically update the tax code for customers who are on a temporary tax code and would benefit from being on a cumulative code — this means they’ll avoid an overpayment or underpayment at the end of the year.
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9 users thanked Gavin Featherleigh for this post.
Sara G on 08/03/2025(UTC), Molly M on 08/03/2025(UTC), Wave Action on 08/03/2025(UTC), Taltunes on 08/03/2025(UTC), Fin Man V on 08/03/2025(UTC), Mike L on 08/03/2025(UTC), MarkSp on 09/03/2025(UTC), Barista on 10/03/2025(UTC), Blunt Instrument on 11/03/2025(UTC)
Elspeth Beaton
Posted: 08 March 2025 10:57:57(UTC)
#6

Joined: 11/12/2019(UTC)
Posts: 227

Thanks: 2 times
Was thanked: 904 time(s) in 192 post(s)
Interesting statistic from HMRC that 8000+ P55 forms processed in three months from Oct 2024 to Dec 2024
See end page of that HMRC link that Gavin put up
xxd09
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3 users thanked Elspeth Beaton for this post.
Taltunes on 08/03/2025(UTC), Jay P on 08/03/2025(UTC), MarkSp on 09/03/2025(UTC)
MarkSp
Posted: 09 March 2025 11:40:55(UTC)
#7

Joined: 02/02/2020(UTC)
Posts: 2,190
Thanks Everyone

I found a few calculators on the Pension company websites
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