Retirement Planning by withdrawing your pension money after 5th April 2015
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A sixty year old married man with two children has a £600,000 house and £200,000 in a SIPP. He is still working and earns £35,000 pa. He is in good health but considering his retirement options in view of the pension changes from 5th April 2015 applicable to all persons over 55. He will be entitled to a state pension of no less than £7,716.80 pa from his 65th birthday in 2020. His planning is based on him living to about 85.
Throughout the options below no account is taken of inflation, price rises or taxation.
Option 1 - Traditional route
He could take a tax free lump sum of 25% of the fund which is £50,000, and an annuity based on the balance of £150,000. Assuming he lives until he is 85 the £50,000 would amount to £50,000/25 = £2,000 per annum. The annuity he is likely to get is £7,000 per annum. This means he would have per annum a total of £16,716 (state pension + lump sum + annuity). He continues to live in his house.
Option 2- Traditional route plus UK buy to let
He could also sell his main residence and buy two properties each worth £300,000 and rent one and live in the other. This will provide him with an additional rental income of say £9,000 per annum. His total income would then be £25,716 per annum.
Option 3 – Takes money out of the SIPP puts it in the bank whilst still working
He could take the money out of the SIPP. As before £50,000 is tax free. The balance of £150,000 will be taxed as his income and as he has a salary of £35,000 about £60,000 tax will be payable. This leaves him with £140,000 net which is £5,600 over 25 years. The money he has assuming he lives to 85 is accordingly £13,316 per annum (state pension + lump sum/25). He continues to live in his house.
Option 4 - Takes money out of the SIPP puts it in the bank after stopping work
Assuming he had stopped work in the tax year he takes the SIPP money then his tax liability will be about £50,000. This means he is left with £150,000 which is £6,000 over 25 years. His total income assuming he lives to 85 is £13,716. He continues to live in his house.
Option 5 - Takes money out of the SIPP puts it in the bank plus buy to let
If he sells his house and buys two houses for £300,000 each and lives in one house and rents the other he will increase his income by £9,600.
Option 6 - Takes money out of the SIPP moves to France
As in Option 4 but he uses the SIPP money to buy a house in France. At the current exchange rate of say €1.4 = £1 he has €238,000 to spend. He sells the house in England and buys 2 smaller properties for £300,000 each. These each rent for £800 per month after all expenses i.e. £19,200 per annum. His income now is £26,916 per annum (state pension + rents).
He has the option at say 70 of selling one of the rental properties which gives him £300,000/15 = £20,000 per annum of extra money through until 85. He then has annual money of £37,316.80 (state pension + £20,000 + rent from one property). He could sell the other property later if needed or keep it in case he needs to move back to England.
Option 7 - Takes money out of the SIPP and buys leaseback
As in Option 4 but he uses the SIPP money to buy a leaseback in France for €210,000 (£150,000 @ £1 = €1.40) taking the maximum own use entitlement of say 8 weeks and stays UK resident. He sells his main home and buys a £300,000 house to live in and a £300,000 buy to let. The leaseback should yield say £5,800 per annum and the buy to let £9,600. This means he has an income of £23,116 (state pension + UK rent + leaseback rent).
|1||16,716||Simple stay in house and benefit from future UK house price rises. Income will become a problem later on with inflation but could move to smaller house or do equity release later on.|
|2||25,716||Simple and have extra income but have to move to a smaller UK house. Could sell the buy to let property to release capital later on.|
|3||13,316||Expensive tax wise but have flexibility to use the money and stay in house|
|4||13,716||Expensive tax wise but have flexibility to use the money and stay in house|
|5||23,316||Expensive tax wise and have to move to a smaller house|
|6||26,916||Expensive tax wise, lifestyle change but exchange rate benefit. Keeps all options open including a return to the UK.|
|7||23,116||Expensive tax wise, no lifestyle change and 2 months free holidays per annum. Need to ensure leaseback company financially strong.|
David Anderson Solicitor Advocate, Chartered Tax Adviser and barrister (unregistered)
Sykes Anderson Perry Limited
9 Devonshire Square
London EC2M 4YF
Telephone 020 3178 3770