pension wind up lump some is it taxable ?

learoy

hi i am 41 and 1 of the previous companies i worked for is winding up its pension and 1 of the options i have is to take a lump sum.the value of my pot is £22,750 does anyone know if this is tax free/part tax free (£18,000) or fully taxable
cheers

TrickyDicky101

I presume you will only be able to transfer the value into another scheme? In which case whenever you retire you will be able to take 25% cash tax-free (under present rules) and the rest will be taxed as you draw it (or the annuity bought with it taxed).

learoy

have tried searching the web and a figure keeps comming up of £18,000.
the 5 option i have are
1.transfer into there new scheme
2tranfer into another scheme
3.take a lump sum payment
4.transfer to a trustee plan
5.take your retirement benefit(only for over 55)

with the pension having a windup order on it it is different and a lump sum is alloud

RichandJ

learoy wrote: »

have tried searching the web and a figure keeps comming up of £18,000.
the 5 option i have are
1.transfer into there new scheme
2tranfer into another scheme
3.take a lump sum payment
4.transfer to a trustee plan
5.take your retirement benefit(only for over 55)

with the pension having a windup order on it it is different and a lump sum is alloud

Sounds like the paperwork you have is incorrect or badly worded. The limit for lump sums on wind up is £18k.

learoy

RichandJ wrote: »

Sounds like the paperwork you have is incorrect or badly worded. The limit for lump sums on wind up is £18k.

hi is that the limit before tax,so would it be possible to take a lump sum of £18,000 and the rest be taxed or is it £18,000 and anyone above that cannot take this option.
also would like to know the answer as a couple of my x work mates have a figure of less than £18,000
thanks Richardj

RichandJ

learoy wrote: »

hi is that the limit before tax,so would it be possible to take a lump sum of £18,000 and the rest be taxed or is it £18,000 and anyone above that cannot take this option.
also would like to know the answer as a couple of my x work mates have a figure of less than £18,000
thanks Richardj

That's the limit full stop I'm afraid. If your fund is worth more than £18k you can't take it as a winding up lump sum. Unless the scheme is willing to make what are known as 'unauthorised payments', which I would be very surprised at - this would involve massively more tax.

Google "HMRC RPSM" & go to the member pages/benefits/lump sums (from memory, I'm not at work this week). Oh, sod it, it's not difficult to find RJ, here's the link :

http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm09105110.htm

TrickyDicky101

That was fascinating RichardJ - I had no idea that was a possibility. If your pot value is £18k or below this is a very advantageous way to receive your pot (as you have already had tax relief on it). I haven't looked at the minutiae, but I would think there is limited tax avoidance potential here so surprised HMRC allows it.

learoy

RichandJ wrote: »

That's the limit full stop I'm afraid. If your fund is worth more than £18k you can't take it as a winding up lump sum. Unless the scheme is willing to make what are known as 'unauthorised payments', which I would be very surprised at - this would involve massively more tax.

Google "HMRC RPSM" & go to the member pages/benefits/lump sums (from memory, I'm not at work this week). Oh, sod it, it's not difficult to find RJ, here's the link :


am i rite in thinking then if they did pay
25% of the £18,000 would be tax free
75% of the £18,000 would be emergency tax
and everthing above that would be at the hi earnings tax rate
of 40%
so if they where to ok my lum sum from my pension pot of £22,797
i would be looking at about £17,000 after tax does this sound correct.
i have 60 days to sort this out so i could ask for a lump sum and then if they dont let me just fransfer the funds to 1 of my other pensions.
would like some idea of what i could get before i reply to there letter.only thinking of the lump some as i am about to buy a new house and would rather put this cash towards the house to lower my morgage and put this money and house towards my pension
cheers

molerat

25% is tax free and the rest is taxed at whatever is appropriate to you, if you already pay higher rate tax the whole taxable amount would be at 40%. The payment you receive would be taxed on a 747LM1 and you would have to arrange a payment / refund correction with your tax office. Anyway, you cannot have a winding lump sum if the pot is over £18k.

learoy

wish they had an option of part lump sum part transfer

RichandJ

TrickyDicky101 wrote: »

That was fascinating RichardJ - I had no idea that was a possibility. If your pot value is £18k or below this is a very advantageous way to receive your pot (as you have already had tax relief on it). I haven't looked at the minutiae, but I would think there is limited tax avoidance potential here so surprised HMRC allows it.

The £18k has to be your only private pension provision, except in a winding up situation, so if that was all you had, you're looking at a pretty poor retirement. Unless you're in a situation where you had multiple fund values* all under £18k and all schemes winding up you wouldn't be able to take them under triviality rules.

* Sorry, I dont like 'pension pot', I know everyone uses it, I just don't like it, sounds childish to me.