Income Tax during Retirement

[R1200GS]

Can someone please explain how I calculate my likely income tax burden when I start retirement? I intent to retire at age 60 and will be able to draw on a state pension at 67. My other forms of income will be from savings plans and a personal pension. I want to try and work out what my income tax level will be so that I can see how much of my pension pot is eroded by tax. What I would like to know is:

• 1. I think my personal allowance will be £11,000 (assuming 2017 figures). Can I subtract this from my total income during retirement to give me the figure that attracts income tax?
  2. If so, would this total income be regarded as: monthly State Pension + monthly Savings income + Personal Pension monthly draw-down, or would any of those element be exempt from Income Tax? My savings plans are ISAs, for example
  3. Can I reduce the taxable income figure by taking 25% off the amount I draw-down each month? I understand that I am currently entitled to take a 25% tax fee amount from my pension pot? I am unsure if this 25% tax free amount is a one time only event and cannot be applied to each and every draw-down amount.
  4. Does this tax free amount only apply to Personal Pensions and not to any other form of income during retirement i.e. can I assume that the State Pension and Savings parts of my income do not benefit from this 25% tax free amount, or can I just add the whole lot up, including a draw-down from my ISAs, and apply a 25% reduction to this gross amount?
  4. Would the Income Tax I pay on the taxable amount be at the same level as the 'normal' income tax bands, currently 20% on anything over £11,001 and up to £43,000 (Feb 2017).

Thank you in advance of some expert help. Chris

[LozaACCS]

The PA is deductible from total income in the most tax efficient order, historically this has been
Non savings income, then
Savings income, then
Dividends.
This may no longer be the case with the nil % starting rate and the personal savings allowance.
Pension payments are non savings income.
The 25% tax free amount is calculated at each date of vesting, so assuming a LA of 1.0m in year 1 and 1.25m in year 3 and a vesting in each year,say 250k and then 300k and a capital value of say 750k in year 1 and 500k in year 3.
Year 1 The LA is 1.0m
the maximum is 750k (the capital value), so 750 * 25% = 187,500 can be taken tax free.
25% of the LA is unused and carried forward.
Year 3 The LA unused is 25% * 1.25m = 312,500
The 300k is still within the remaining LA of 312,500 so would avoid the LA charge.
State pension and savings income are not within the scope of the tax free lump sum.
The tax rate can be easily managed by adjusting your draw down requirements.
A local accountant or tax adviser will be able to assist you.

[R1200GS]

Thank you for your response, I am very grateful for it, but don’t understand some aspects, sorry. I think the best way for me to appreciate how income tax is likely to be deducted from my pension and savings draw-downs is to set out an example. This has been extracted from a prediction spreadsheet that helps me plan for my actual retirement.
If I take 2025 as an example, (I appreciate that all sorts of things may have changed in the world of tax by then, but let’s assume the situation is the same as it is now), is the following correct?
State Pension for 2025 - £8000. Outgoings for 2025 - £25000. Draw-down to balance outgoings - £17000. Proportion of draw-down from personal pension - £10200. Proportion of draw-down from ISA - £6800.
Can I assume that the personal pension part of £10200 is 25% tax free for each year (assuming that I have used up my 25% in previous years)? So am I right to calculate the tax as follows?
Amount that attracts income tax for 2025: (8000 + (10200 minus 25%) + 6800) minus my personal allowance of 11000 = 11450. I would then apply a tax band of 20% to this figure, (as it falls into the basic rate band), resulting in an income tax payment of £2,290 for 2025. Should I exclude the ISA amount from these calculations as (I think) they do not attract Income Tax? If so, this would mean a tax payment of £930.
The value of my pension and the total payouts are not going to exceed the £1m Lifetime Allowance, so I don’t think I need to worry about this. Plus, I don’t intend to make any pension contributions during retirement, so tax relief on pension contributions shouldn’t be an issue either. The figures above don’t take account of any tax relief on savings.
So, how’s that? You may be surprised to hear that income tax is not a strong point for me! I would be grateful for any (simply explained) help or reassurance that I’ve got this right.
Chris

[R1200GS]

Anyone?