AJ Bell SIPP withdrawal without tax free sum
Posted: July 5th, 2023, 10:19 am
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
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