How Do You Withdraw Funds from a SSAS Efficiently?
A SSAS pension is a valuable and flexible tool in helping to create tax efficient income planning well into your retirement years. The earliest time that you may draw pension funds is currently from age 55. This will rise to age 57 from 2028.
Withdrawing SSAS Funds: An Example
Let’s consider a couple who each have £1 million making a SSAS pot with £2 million in total, which is the position we aim to get our clients to, with £1 million in your part of the SSAS you have access currently to up to 25% of that fund as tax free cash. Depending on your income requirements you can take the tax free cash in staged payments.
A Client couple needing £50,000 per year of additional income could take £50,000 from the tax free cash allowance of member one for the next five years completely free of income tax.
Member Two, who also had £1 million, would also have access to up to £250,000 of tax free cash. They too could take £50,000 per annum (it’s called crystallisation of the pension fund) tax free for another five years.
Therefore, a married couple with £2 million in a pension scheme could withdraw £50,000 a year completely tax free for up to ten years and possibly even further, depending on how much they want.
When Am I Subject to Income Tax?
Once you’ve exhausted the tax free cash allowance, any income that you do draw from the pension scheme is subject to PAYE and therefore Income Tax at your highest marginal rate.
Utilising the Benefits of Your Personal Allowance
However, you also have a Personal Allowance which if not used up elsewhere, would limit any tax payable to income that exceeds the allowance threshold - currently £12,570pa
For example, a married couple could each draw £12,570, giving them a £25,140 annual income just using up their personal allowances. Anything above that incurs tax at their highest marginal rate, depending on what other income there is from other sources.
