Thousands of people aged over 55 who take money from their pension funds face possible 70% tax charges, says the Mail. This is because if you take a tax-free cash sum of over £7,500 from a pension fund, and then add to your regular pension contributions, HMRC can claim that you are abusing the tax relief system and impose a 40% tax charge on the tax-free cash withdrawal plus 30% in other charges and penalties. The issue arises because many people are taking cash from old pension pots, typically worth less than £50,000, while remaining in their employer pension scheme to which they make contributions. It’s open to HMRC to say that if the tax-free cash was used to, say, pay off debt, that was what enabled someone to pay more into their pension – and this is defined as abuse.
This is yet another example of why you really do need to take care – and advice – on pensions to avoid the tax traps.
The value of your investment can go down as well as up and you may not get back the full amount you invested. The value of tax reliefs depends on your individual circumstances. Tax laws can change.
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Beware 70% pension tax charge
Beware 70% pension tax charge
September 21st, 2015• Comments Off on Beware 70% pension tax charge• Posted By Greenwood
Thousands of people aged over 55 who take money from their pension funds face possible 70% tax charges, says the Mail. This is because if you take a tax-free cash sum of over £7,500 from a pension fund, and then add to your regular pension contributions, HMRC can claim that you are abusing the tax relief system and impose a 40% tax charge on the tax-free cash withdrawal plus 30% in other charges and penalties. The issue arises because many people are taking cash from old pension pots, typically worth less than £50,000, while remaining in their employer pension scheme to which they make contributions. It’s open to HMRC to say that if the tax-free cash was used to, say, pay off debt, that was what enabled someone to pay more into their pension – and this is defined as abuse.
This is yet another example of why you really do need to take care – and advice – on pensions to avoid the tax traps.
The value of your investment can go down as well as up and you may not get back the full amount you invested. The value of tax reliefs depends on your individual circumstances. Tax laws can change.