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Charlotte

My pension pot means we can expand our property portfolio.

Charlotte, 65, has final salary pension income of £40,000 a year, a defined contribution pension pot of £60,000 and receives her full State Pension. Her husband has final salary pension income of £80,000 per year. They own their own home, and have another property which they let.

Charlotte

What Charlotte wants

We’ve been successful landlords, and now we’d like to expand our buy-to-let portfolio with another property. I want to use my pension pot to help us do this.


Charlotte's idea

I’m going to take my defined contribution pension pot in one go and use it to invest in another property with my husband. I’m already a higher rate tax payer so I can’t escape paying 40% tax.


What Charlotte does

  1. Charlotte takes one quarter of her pension pot as a tax-free lump sum of £15,000

  2. She takes the remaining £45,000 as a taxable lump sum

  3. As her other income puts her in the higher rate tax band, she pays £18,000 tax on the lump sum and receives £27,000

  4. In total Charlotte receives £42,000 which she uses to help pay for the buy-to-let property


What Charlotte gets

Tax-free cash £15,000
Taxable lump sum £45,000 (£18,000 tax leaving £27,000)
Total £42,000

See how we worked this out

  • State Pension age63
  • State Pension£8,546
  • Pension pot£60,000
  • Final salary income£40,000 a year
  • Rental income£11,400 a year
  • Property value£355,000

Charlotte's calculation

Personal allowance (0% tax) Earnings from £0 to £11,850
Basic rate (20% tax) Earnings from £11,851 to £46,350
Higher rate (40% tax) Earnings from £46,351 to £150,000
State Pension £8,546 a year
Final salary pension £40,000 a year
Rental income £11,400 a year
Total regular income (subject to tax) £59,946 a year
Lump sum (taxed at 40%) £45,000 (£18,00 tax payable)

Important things to consider

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

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

  • If she had left it invested, there would also have been a risk that the value of the pot could fall as well as rise and is not guaranteed

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

  • The income tax rates and bands for Scottish residents may be different

  • 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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