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Thomas

I’m using my pension pot to help my boy get a house.

Thomas, 66, is widowed and has a grown-up son. As well as receiving his full State Pension, he has final salary pension income of £39,000 per year plus a defined contribution pension pot of £50,000. He owns his home and has £60,000 in savings. 

Thomas

What Thomas wants

I already have a good income from my final salary pension, so I want to use my other pension pot to help my son buy a house.


Thomas's idea

Helping my boy is very important to me, so I’m less concerned about the tax I’ll pay by taking the pension pot all in one go. I already pay 40% tax anyway, so however I take the money from my pension I’ll be paying tax at this level.


What Thomas does

  1. Thomas takes one quarter of his pension pot as a tax-free cash sum of £12,500

  2. He takes the remaining £37,500 as a taxable lump sum

  3. As his other income puts him in the higher rate tax band, he pays £15,000 tax on the lump sum and receives £22,500

  4. In total Thomas receives £35,000 which he uses to help his son buy his house


What Thomas gets

Tax-free cash £12,500
Taxable lump sum £37,500 subject to tax
Total £35,000

See how we worked this out

  • State Pension age65
  • State Pension£8,546
  • Pension pot£50,000
  • Other income£39,000 a year
  • Other savings£60,000
  • Property value£175,000

Thomas' 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 £39,000 a year
Total regular income £47,546 a year
Lump sum (taxed at 40%) £37,500

Important things to consider

  • As Thomas was already in the 40% tax band due to his income, he paid tax at that rate

  • 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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