Pensions & Tax

[BrilloPad]

I thought you could take 25% a year?

I am wrong :-

For each cash withdrawal the first 25% (quarter) is tax-free and the rest counts as taxable income.

[BrilloPad]

Assuming I have no other income and I take £20,000 out of a personal pension, which of the following would be the correct amount of tax due?

1. First 25% of pension is tax free so 5k tax free, 11k personal allowance, so tax due on remaining 4k @20% =£800 tax

2. 11k personal allowance, leaves 9k, 25% of this tax free (£2250) which leave £6750 to be taxed at 20% = £1350 tax

Cheers

TZ

Option 1 is correct.

[drumtochty]

Assuming nothing has already been drawn from the pension and you are over 55.

You can take 25% of the total pot tax free, therefore it is just daft to leave tax free money in there if there is tax free money to take out. That is there is more than £20k in the pot.

If there is only £20k in there.

Then £5k of tax free money from the pension lump sum.

Then £11k within your personal allowance tax free in the year 6th April 2016 to 5th April 17 if you have no other earnings.

Then pay tax on the remaining £4k of the total £20k, therefore a tax bill of £800.

[syrio]

It depends.

If you are taking a lump sum out at the start of your pension you could take 25% of the entire pension value tax free. e.g. You have £100k in your pension pot you can take out £25k tax free.

If you haven't taken already taken your 25% tax free lump sum out, you can withdraw money out of your pension, 25% of that money will be tax free. The remaining 75% will be taxed as income. (only the amount over £11k will be taxed)

If you have already taken your 25% lump sum then all of the money that you withdraw will be taxed as income. (only the amount over £11k will be taxed)