For a few years, aged 18>25 ish, I paid into a private pension, before realising that as a standard rate tax payer, in my opinion it was better to put that money towards a larger mortgage and a better house.... I got my first orrible place in Bradford aged 21. ( jeez it was really really awful, but better than living at home in comparative luxury. I wanted independence!!)
I'm now 61 and decided a few years ago to give up full time work when I paid the mortgage off, live frugally, sponge off friends overseas, and work part time as and when. I have two small private pensions, and took ( and spent) the 25% tax free lump sum as soon as I could. I'm now taking annual drawdown and hope to have spent both pensions by the time I reach 66, which is when I expect to receive the State Pension.
In the current tax year I have only earned about £2k from small jobs I have done ( Kennel work, gardening, a few weeks in an office for a pal) so drew down £9k to maximise my personal single persons allowance without having to pay any tax.
The sum I received was £6300.54, tax deducted being £2699.46. After completing an online form, this has now been refunded/reclaimed, but why that strange amount?
I'm merely curious... currently in Moraira for a month staying in a small bungalow, paying rent of €350 each ( there are 2 of us sharing the place with friends nearby for 3 months) for 28 days, plus gas & electricity, so might stay another month now I've got more funds! And drink more wine & Mahou.
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>> In the current tax year I have only earned about £2k from small jobs I
>> have done ( Kennel work, gardening, a few weeks in an office for a pal)
>> so drew down £9k to maximise my personal single persons allowance without having to pay
>> any tax.
>> The sum I received was £6300.54, tax deducted being £2699.46. After completing an online form,
>> this has now been refunded/reclaimed, but why that strange amount?
>>
Because effectively PAYE is applied on the lump sum as if you will receive the same amount every remaining month of the tax year - if you look at the date of receipt of the money then add that amount for each subsequent month, that will give you a clue as to what the PAYE system assumes will be your income for the full year (probably quite a scary figure) .
So if you received it in July (tax month 4) it would assume your total income for the year would be 9x£9.000 (£81,000) plus your other income of £2,000.
Total tax on all that lot would be around £22,500 and so £2,500 per month. That's just an example.
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I understood that, thanks :-)
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The more I listen to you LL, the more I think you are a complete.........ly wise man and I demand a copy of your business plan tout suite. 😊
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The idea of spending 20 years on only the state pension... £155 per week.
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Neither would I Mappy, but being a bit thick and realising I would never be a higher rate tax payer and get the full benefits of tax relief on a pension, decided to stop paying into my private pension after 6 years, and use that money to pay for a larger mortgage. And enjoy the unquantifiable benefits of living in a nicer property in a nicer area... away from Bradford. I now rattle around in a nice house in a lovely part of the world and When my pension is spent & enjoyed when I reach 66, maybe a little later, I shall downsize and release lots of tax free equity to keep me going.
I appreciate that is very simplistic, but currently it's Plan A.
Sincerely hope I don't come across as being a smarty pants...I can enjoy a pint with most folks!
Regards
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Pension drawdown - hjd
