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  1. #1

    Understanding the 25% SIPP tax free process

    My wife will, in about a years time, be retiring and starting to take money from her SIPP.

    It will probably make sense for her to withdraw the tax free money in several tranches. However, I am unclear exactly how this works in practice.

    Say, for the sake of illustration her SIPP is worth 400,000. She decides to take 10% out (40,000) tax free, leaving 360,000 in her SIPP. A year later she decides to take out 15% (to give a total of 25%), but by that time her SIPP has grown to 380,000. Is the 15% she can take 15% of 360,000 (54,000) or 15% of 380,000 (57,000)?

    I have kept the illustration above fairly simple, but in practice she is likely to take her tax free money in several tranches.

  2. #2
    In theory, yes. But she needs to check that her pension provider has the IT system to be able to cope with the transaction.

    So make a phone call on Monday.

  3. #3
    In theory yes? Which one is correct?

  4. #4
    The reason for not taking the full tax free amount in one go would be to stay below the income tax threshold for several years in a row.

  5. #5

    Your wife should speak to the administrators of her SIPP and ask for a few worked examples.

    It gets very complicated, very quickly.

    BTW, why would she not take the full 25% tax free amount?



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