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Victoria

I’m using my pension to help us buy another property.

Victoria, 65, has a final salary pension income of £50,000 per year as well as a defined contribution pension pot of £22,000. Her husband has final salary pension income of £80,000 per year. They own their own home, plus one buy-to-let property. She also receives her full State Pension.

Victoria

What Victoria wants

We’re really keen to buy another property to let out and boost our income. I want to use all of my pension pot to help pay towards it.


Victoria's idea

Taking my pension fund in one go feels like the right thing for me to do. I’m already a higher rate tax payer so I can’t escape paying 40% tax.


What Victoria does

  1. Victoria takes one quarter of her pension pot as a tax-free cash sum of £5,500

  2. She takes the remaining £16,500 as a taxable lump sum

  3. As her other income puts her in the higher rate tax band, she pays £6,600 tax on the lump sum and receives £9,900

  4. In total Victoria receives £15,400 which she uses to help pay for the buy-to-let property


What Victoria gets

Tax-free cash £5,500
Taxable lump sum £16,500 (£6,600 in tax leaving £9,900)
Total £15,400

See how we worked this out

  • State Pension age65
  • State Pension£8,767
  • Pension pot£22,000
  • Final salary pension income£50,000 a year
  • Other savings£200,000
  • Rental income£9,000

Victoria's calculation

Personal allowance (0% tax) Earnings from £0 to £12,500
Basic rate (20% tax) Earnings from £12,501 to £50,000
Higher rate (40% tax) Earnings from £50,001 to £150,000
State Pension £8,767 a year
Final salary pension income £50,000 a year
Rental income £9,000 a year
Total regular income (subject to tax) £67,767 a year
Lump sum (taxed at 40%) £16,500

Important things to consider

  • As Victoria was already in the 40% tax band due to her income, she paid tax at that rate

  • When Victoria and her husband die, the property or any proceeds from it will be subject to inheritance tax. If the money had been left in the pension pot untouched, and she died before age 75, her named beneficiary would have received it tax-free

  • If Victoria had left the money in her pension pot untouched, the value may have risen, allowing her to withdraw a larger amount at a later date

  • If she had left it invested, there was also a risk that it could fall

  • This example is based on current law and tax rates. These may change in the future and income tax will depend on individual circumstances

  • If you live in Scotland or Wales you may have a different income tax rate or band

  • The State Pension amount shown here is the current maximum and is only an example. The amount you get depends on your National Insurance contributions’ record and your individual circumstances. You can get a State Pension forecast by visiting View - Check your State Pension 

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