If I go into drawdown and take 25% tax free can I still take £12,570 annual income from my DC pension without incurring income tax?

20 September 2021

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Question by Ian

If I go into drawdown and take 25% tax free can I still take £12,570 annual income from my DC pension without incurring income tax?


Answered by Rachel Efetha

Hi Ian

As long as you don't have any other taxable income, then yes. If you don't need the 25% as a lump sum then you could take it on a monthly basis by cashing in £16,760 pa, of which 25% is tax free and the other 75% is taxable but covered by your personal allowance. This saves your tax free cash sitting in your bank account doing nothing if you don't have any capital expenditure, and is also great if you have an Inheritance Tax Liability as pensions aren't subject to IHT.

Regards
Rachel

Answered by

Rachel Efetha

Chartered Financial Designer

Rachel has nearly 30 years’ experience in Financial Services, with the last 21 years advising clients. She advises on a holistic basis but particularly enjoys Cashflow Planning to see when her clients can afford to retire, and has reduced grown men to tears twice by telling them they could afford to resign right now. As a divorcee herself, Rachel loves coaching women going through divorce to take financial control, and has successfully argued with solicitors to gain her clients a much bigger slice of the pension pie.