Case study - Taking funds as a lump sum


• Mrs Patel, age 60.

 • £100,000 in SSAS.

 • Wants to draw £25,000 to fund her daughter’s wedding.

 • Doesn’t require any income yet.

Mrs Patel has two options as to how she can take her lump sum:

1. A tax-free pension commencement lump sum (PCLS) of £25,000. Once she has taken the cash she will have £75,000 in crystallised funds left in her pension which she will be able to start taking income from under flexi- access drawdown whenever she likes (subject to income tax at her marginal rate).

2. A lump sum that is part tax-free and part taxed. The first 25% of the lump sum crystallised will be tax free and the balance will be taxed at her marginal rate of tax. The net figure she will receive is:  (25% of the lump sum tax free and 75% of the lump sum taxable at marginal rate, figures depend upon the marginal rate of tax that applies). Using this option she will be left with remaining funds in her pension. This is all uncrystallised and she can take further lump sum payments at a later date, or use the fund to take PCLS and an income under flexi-access drawdown. This second option leaves a larger proportion of the remaining funds as ‘uncrystallised’ so there is a bigger entitlement to a tax-free sum in the future. In addition, by leaving it in the pension, it will benefit from tax-free growth until the money is required.

Whichever option Mrs Patel chooses she can later use any funds remaining in her pension to purchase an annuity, should she wish to do so.

If you have any questions about this subject, please speak to your financial adviser.

This information is provided for information only, we do not provide advice.