For many of our clients who invest in personal pensions (SIPPs) the tax situation can seem complicated. Large quantities of current pension regulation is full of jargon and terminology that requires professional qualifications. We highlight some of the main tax considerations for looking at pension saving, spending and inheriting. Every client is different, so please contact us if you need help on this issue.
- Use your annual allowance of £40,000
- Use prior year allowances if available
- Contributions can come gross from an employer
- Contributions from savings benefit from 20% tax relief immediately and higher rate taxpayers can reclaim at their marginal tax rate
- Income and capital growth within a pension are tax free
- Retire at your chosen retirement age (the current range is 55 to 57 years old)
- You have the option to take tax free cash, which we usually recommend – this can be used to finance ISAs to increase tax free retirement income
- Tax free cash can be taken out in several lumps, but this costs more to do
- Small pensions can be encashed
- Money taken out of a pension is taxed at source by the pension company
- In “flexi-access drawdown”, any amount of money can be withdrawn subject to your marginal tax rate
- If you die before the age of 75, your pension can be left to any nominated beneficiary(ies) and paid to them up to £1.03m tax free or it can be paid into nominated pension(s) tax free.
- If you die after the age of 75, it must be paid into nominated pension(s), and again the £1.03m tax free limit applies (the test is made at age 75). Any withdrawals are then taxed as PAYE income.
- The £1.03m limit will rise in line with CPI.
Risk Disclaimer: The value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance. This document is not intended as investment advice. Any security mentioned in this commentary is for information purposes only and is not a recommendation to buy. Wealth Matters is 4 Shires opinion led commentary. The contents of this webpage are for general information only and do not constitute investment or financial advice. This is not a recommendation to buy or sell any security or to take any action.