Annuity Trade In

 
Pension Annuity Phone Number : 0845 83 87 811
Best Pension Annuity Home Seperator Free Quotes Seperator Pension annuity seperator Tax Free Cash Seperator income drawdown seperator pension lump sum seperator annuities abroad seperator
Annuties and Retirement Products for Customers Overseas
Best Pension Annuity Social Media Visit the Best Pension Annuity page on Facebook Best Pension Annuity on Google+ Learn about Annuities and Drawdown on our YouTube Channel Business Connections
 
Best Pension Annuity is a trading style of Platinum Financial Consulting    
AUTHORISED & REGULATED BY THE FINANCIAL CONDUCT AUTHORITY    
 
Income Drawdown Customer Protection  
 
Check us now on the FCA Register. Number 227014
   
Pension Fraud Protection  

Taking a Lump Sum from your Drawdown contract and the tax implications

     

The content of this page is based on a standard reply we give to our customers who have asked about releasing a lump sum (after Tax Free Cash) from their pension fund.  

This article is therefore not specific to your pension fund, but if you own an Income Drawdown contract the principles and rules discussed below do apply to you, and you should consider them carefully before taking action.

While we will help you manage your pension fund how you want and in line with the new rules, we would not be doing our job properly if we did not make you aware of the pitfalls and tax traps that now exist. We will therefore deal with these first.

While the rules that come into effect from 6th April 2015 make some radical changes, there are equally a number of rules that have not changed. Perhaps the most important is the way that money you take from your pension is taxed – there have been no changes to the taxation of your pension fund, and people who take big lump sums (or even all of their pension fund) in one go, may be surprised to discover that they have just given thousands of pounds of their money to the taxman.

The golden rule that applies now, and will apply equally in the future, is that only the first 25% of your original pension fund will come to you tax free. The remaining 75% (no matter how you take it) will be subject to income tax.

Many of our customers originally came to us so that they could take the tax free element of their fund only, thereby leaving the taxable 75% until they were older or retired (and likely to be subject to a lower rate of tax).

If you have previously taken your tax free lump from your pension fund then any further income or lump sums you take from it will be subject to income tax.

Any sums you take from your pension fund over the tax free allowance will be subject to tax at either 20%, 40% or 45%. Even though you are taking a lump sum, it is treated as income by Her Majesty’s Revenue and Customs. This also means that any other income you earn from your normal employment could be pushed into a higher rate of tax as the lump sum is counted as income. As an example this could cause a 20% tax payer to pay 40% tax on their entire income for the year.

This element of the new rules has not been so widely publicised and we believe the Government are expecting quite a tax windfall from unsuspecting pension customers.

Based on current knowledge we believe that, in line with current processes, providers will give customers their requested lump sum less basic rate tax of 20%. In other words a customer who has previously taken their 25% tax free cash, asks for a further lump sum of £20,000. They will only receive £16,000 as the remaining £4,000 will be paid to the taxman. The £20,000 will also be added to the customer’s gross income for the year and will be used to calculate whether the customer needs to pay further tax on the sum.

For the reasons above we are very concerned that many customers will directly contact their pension provider to request that they are paid either a lump sum or possibly all of their pension fund in one go. They may come to regret such action when the tax implications above take hold.

Of course some of our customers will be interested in taking a lump sum from their pension fund. Our role will be to help them take it as tax efficiently as possible – some may be able to pay no tax at all.

If you are going to pay tax, then at least we can make you aware of this before you take action that you otherwise may not have. We may also be able to help you gain an understanding of how much tax you will have to pay on the lump sum and your other earnings.

Even if you do need to pay tax, at least you will have done so knowing the situation first and you would have made an informed decision based on this information.

Finally we should also point out that while the idea of taking a lump sum from your pension may sound very attractive, you will be reducing the money available to you in retirement. If you deplete your pension fund, you may find that you don’t have enough money to live on in retirement.

If you would like help releasing a lump sum from your pension please contact us. We will be happy to discuss your pension fund options and tax position. You can call us on 020 33 55 4827.

By Bob Cook
Published : 26th January 2015
Nothing in this article should be taken as personal advice and recommendation. UK tax rates and pension legislation are liable to change and concepts, rates, legislation and rules referred to may not be current at the time you read this article.
 

 

 
Pension News and FAQ's
Pension News and Updates FAQ's drawdown and annuities
Get pension news and information now
 
Pension Lump Sum Tax Sting
How a pension lump sum is taxed Get Quotes to take a Tax Free Lump Sum Tax on Lump Sums Divider Ask a question about taxation of your pension Tax Free Cash Only
quote and callback spacer
question and guide divider
Get a free call back ger a free guide to Pension Lump Sums
Beech Left good old fashioned personal service via the interest
 
Pension Testimonial
 

The service I received was second to none, could not have been better. I would not hesitate to recommend this company to anyone.

Superb and extremely professional

 
 
Mr. C. McGowan - Aberdeen
 
 
May 2014
 
Pension Feedback
 
Annuity or Tax Free Cash Footer
ABOUT US | INITIAL DISCLOSUREFREE ANNUITY GUIDE | TERMS & CONDITIONS | PRIVACY POLICY | CONTACT US | SITEMAP | NEWS |  BLOG

Cookies Policy : The website does not use cookies and nothing is downloaded to your PC or Device

The information contained on this website is for information purposes only.

This website DOES NOT contain personal advice based on your circumstances.

Platinum Financial Consulting
The Old School House, East End Road
Bradwell-on-Sea, Essex, CM0 7PY

Telephone : 020 33 55 4827           Fax : 0871 277 1422           Email : info@platinumifa.co.uk

AUTHORISED AND REGULATED BY THE FINANCIAL CONDUCT AUTHORITY

Copyright © 2009 & 2017 Platinum Financial Consulting

FCA Registration Number : 227014

Keep up to date with annuity rate changes and other retirement issues  
If you are nearing retirement keep up to date with annuity rate changes by subscribing to our news feed

Pension Annuity Specialists