New UK Pension Rules Ahead
The recent budget announcement is having an impact on UK pensions. US Tax & Financial guest contributors, LB Group, a Top 100 firm of Chartered Accountants, Chartered Tax Advisers and Business Advisers, sum up below how you can have full and flexible access to your pension if you are over the age of 55.
New Pension Rules – Tax Advice is Paramount!
By Paul Mustoe, Tax Director at LB Group
From 6 April 2015, anybody over the age of 55 will have full and flexible access to their personal pension fund. It should be noted however, that some existing pensions are not set up to allow this, meaning you may need to transfer your pension to a newer scheme.
It is important to factor in any tax liability which may arise from withdrawing a large part of a pension fund. Up to a quarter of the pension fund may be withdrawn free of tax, but withdrawals above this level will be treated as taxable income. Taking a large taxable lump sum from a pension fund could push an individual into tax rates of 40%, 45% or even more in circumstances as set out below, so careful planning is required to prevent an unexpected tax charge which could reduce the net amount received significantly.
The recent Budget announced that individuals who are already taking an annuity may in the future be able to trade their annuity for cash, potentially unlocking pension savings for many existing pensioners.
The flexibility to access a pension fund may be particularly useful where an individual is looking to invest in residential property to produce rental income in retirement, as pension funds are not currently permitted to invest in this type of property. However, tax advice will be paramount regarding the amounts and timing of the withdrawals.
The changes are also likely to encourage pensions saving as an investment. The new rules mean that pensions are now arguably the most effective low-risk tax planning opportunity available. This is particularly true for those individuals with incomes between £50,000 and £60,000 affected by the Child Benefit tax charge or those with incomes between £100,000 and £121,000 who lose some or all of their tax-free personal allowance. In those cases, tax relief on pension contributions can often be 60% or more; in extreme cases, an individual can even save up to 100% tax, effectively giving them pension contributions for free!
If you have any questions regarding this article please contact email@example.com / 01206 867551. Please note the above does not constitute financial advice and LB Group cannot be held responsible for any errors or omissions.
If you have any questions regarding your tax situation, please contact us.