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Elizabeth

I’m helping my daughter with a deposit for her first home.

Elizabeth, 65, is married and has a daughter. She has final salary pension income of £6,000 per year, £5,000 in savings, a defined contribution pension pot of £12,000 and receives her full State Pension. Her husband has a final salary pension income of £20,000 per year.

Elizabeth

What Elizabeth wants

I want to use my pension pot to help my daughter get a foot on the property ladder.


Elizabeth's idea

I’m happy to take my pension pot in one go. I’m already a basic rate tax payer so I know that other than the tax free cash, I’ll pay tax on the rest, but it’ll be a good contribution towards a deposit for my daughter.


What Elizabeth does

  1. Elizabeth takes one quarter of her pension pot as a tax-free cash sum of £3,000

  2. She takes the remaining £9,000 as a taxable lump sum

  3. As her other income puts her in the basic rate tax band, she pays £1,800 tax on the lump sum and receives £7,200

  4. In total Elizabeth receives £10,200 which she uses to help her daughter with her deposit


What Elizabeth gets

Tax-free cash £3,000
Taxable lump sum £9,000 (£1,800 tax leaving £7,200)
Total £10,200

See how we worked this out

  • State Pension age63
  • State Pension£6,549
  • Pension pot£12,000
  • Other income£6,000 a year
  • Other savings£5,000
  • Property value£170,000

Elizabeth's calculation

Personal allowance (0% tax) Earnings from £0 to £11,850
State Pension £6,549 a year
Final salary pension £6,000 a year
Regular income (subject to tax) £12,549 a year
Lump sum (taxed at 20%) £9,000

Important things to consider

  • As she was already in the 20% tax band, she paid the minimum tax she could on her pension pot by taking out a lump sum

  • Once Elizabeth has spent all of the money from her pension pot, she'll have to rely on their final salary pensions and her State Pension in retirement, unless she has any other assets she can use to give her an income or is able to claim any additional state benefits

  • 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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