New pension options

heysham12

I would be very grateful for an answer to what I hope is a fairly simple question.

I already receive over £20k per annum in pension income from a previous employment. My state pension will increase this amount to £25k.

When I retire from my present employment in about 18 months time, can I take my £40k pension pot as a lump sum, with £10k as a tax free sum (25%) and £30k taxable?

heysham12

Thanks Molerat for the unequivocal answer. My question was inspired by the reply to a reader's query on page 4 of the Sunday Times Money section. (William Kay - Wealth Matters)

The relevant paragraphs are:

'While the new flexible drawdown rules, starting April 6th, let you draw your pension funds at will, taking the entire fund into your bank account if you choose, they have several conditions.'

Aside from the £20,000 minimum in come snag, you cannot use flexible drawdown in the same tax year in which you contribute to a money purchase pension.'

This would suggest that if those conditions are met, the entire fund could be taken - or am I missing something?

hugheskevi

Assuming your provider offers flexible drawdown or you transfer to one which does you should be able to take it all as a lump sum.

Be aware that by doing so, you would push yourself into higher rate tax, as income from flexible drawdown counts as income in the tax year received. As such, you should investigate whether it might be better to take flexible drawdown over a couple of years

Loughton_Monkey

heysham12 wrote: »

When I retire from my present employment in about 18 months time, can I take my £40k pension pot as a lump sum, with £10k as a tax free sum (25%) and £30k taxable?

Absolutely correct.

You can take your 25% tax free lump sum and then put the remaining 75% into 'flexble drawdown'. This means that you can take that £30K whenever you want and it will be taxed.

Clearly, though, it is a little bit naive to take any more in year 1 to attract higher rate tax. So your draw it down at whatever maximum rate you can to avoid higher rate - taking into account all your other pension and savings income.

heysham12

Thanks Loughton Momkey - I noiw have a clear picture

property.advert

Is the presumed tax withheld or is the fund paid out and you are liable for the tax due ?

And if you were to go non resident, would it be payable free of tax ?