Pensions & Tax

[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)

[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.

[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.

[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]

From the govt link posted above:

"You can usually take 25% of a pension pot tax free. Your pension provider takes tax off the remaining 75% before you get it."

Accountant, though? I would have thought that an IFA would be better.

I thought you could take 25% a year?

[meridian]

isn't the 25% tax relief for a one off withdraw of 25% of the total fund, not 25% of the amount taken in the first year. So it will depend on the fund value.

as NLUK says, speak to an accountant

From the govt link posted above:

"You can usually take 25% of a pension pot tax free. Your pension provider takes tax off the remaining 75% before you get it."

Accountant, though? I would have thought that an IFA would be better.

[FarmerPalmer]

isn't the 25% tax relief for a one off withdraw of 25% of the total fund, not 25% of the amount taken in the first year. So it will depend on the fund value.

as NLUK says, speak to an accountant

[ASB]

On the assumption that you are over 55:-

1) Have you not taken the 25% lump sum previously ?
2) I am assuming this is just a drawdown ?
3) I am assuming it is within the drawdone rules ?

If this is the case then:-

1 - 25% would normally be eligible for the lump sum treatment
2 - the balance is just income

If you have no other income then:-

£5k at 0
£11k (assuming you qualify for 11k personal allowance) at 0
£4k at 20%

If you have other income then the 15k will be taxed at your marginal rate (and may of course increase that by pushing you into a higher tax bracket).

A good way of dealing with it it to open up your sa account and put the number in and do the calc and not file it.

Of course your personal circumstances (or my errors) may make the above a complete pile of since your tax affairs are based entirely on your circumstances.

https://www.gov.uk/tax-on-pension/wh...-whats-taxfree

[WordIsBond]

Probably not too many contributors here are drawing their pensions yet....

[BrilloPad]

Are you over 55?

[VillageContractor]

Thanks for your detailed response.

I'm sure one of the many talented members on the forum may know the answer

It's definitely an accountant, I'm sure of it!

[TZ5]

Maybe you need to have a chat with someone the specializes in taxation? An accountant perhaps?

Thanks for your detailed response.

I'm sure one of the many talented members on the forum may know the answer

[northernladuk]

Maybe you need to have a chat with someone the specializes in taxation? An accountant perhaps?

[TZ5]

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