Cutting tax

zygurat789

I am over 67 and plan to retire next tax year. I can arrange to have a normal income less than £10,500 and savings income less than £5,000 and, thus, I pay no tax and my marginal rate is zero. I withdraw 100% of my pension pot, with no tax to pay, and invest in NISAs at £30K pa (with spouse)
I have saved all costs and fees associated with a drawdown and all PAYE associated with an annuity and the 55% my heirs would pay to get their hands on my drawdown.
Too good to be true, perhaps there will be a restatement of the situation.

CLAPTON

zygurat789 wrote: »

I am over 67 and plan to retire next tax year. I can arrange to have a normal income less than £10,500 and savings income less than £5,000 and, thus, I pay no tax and my marginal rate is zero. I withdraw 100% of my pension pot, with no tax to pay, and invest in NISAs at £30K pa (with spouse)
I have saved all costs and fees associated with a drawdown and all PAYE associated with an annuity and the 55% my heirs would pay to get their hands on my drawdown.
Too good to be true, perhaps there will be a restatement of the situation.

not enough detail to make any sense

00ec25

its a tongue in cheek pop at the budget announcement

zygurat789

CLAPTON wrote: »

not enough detail to make any sense

It's all in the budget

zygurat789

00ec25 wrote: »

its a tongue in cheek pop at the budget announcement

Try reading the budget.

CLAPTON

zygurat789 wrote: »

It's all in the budget

how do you withdraw all your pension fund free of tax?

unless its very small and you have no other income

zygurat789

CLAPTON wrote: »

how do you withdraw all your pension fund free of tax?

unless its very small and you have no other income

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293743/budget_2014_greater_choice_in_pensions_explained.pdf

According to this you will pay either 0% or 20% or 40% or 45%. In the same way as the state pension lump sum is taxed.

It's not too dificult to have a marginal rate of 0%

However, treasury examples show the fund being taxed as income.

jem16

zygurat789 wrote: »

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293743/budget_2014_greater_choice_in_pensions_explained.pdf

According to this you will pay either 0% or 20% or 40% or 45%. In the same way as the state pension lump sum is taxed.

I'm afraid not.

When you take the remaining 75% in full, it will all count as taxable income and you will pay the appropriate tax.

So if you have a pension pot of £100k, £25k will obviously be tax free. Out of the £75k left, the next £10.5k ( assuming tax year 2015/16) will be at 0% tax, the next £31,785 will be at 20% and the next amount would be at 40% etc.

zygurat789

jem16 wrote: »

I'm afraid not.

When you take the remaining 75% in full, it will all count as taxable income and you will pay the appropriate tax.

So if you have a pension pot of £100k, £25k will obviously be tax free. Out of the £75k left, the next £10.5k ( assuming tax year 2015/16) will be at 0% tax, the next £31,785 will be at 20% and the next amount would be at 40% etc.

The budget speech said:-

But instead of the punitive 55% tax that exists now if you try to take the rest, anything else you take out of your pension will simply be taxed at normal marginal tax rates – as with any other income. So not a 55% tax but a 20% tax for most pensioners.

And when HMRC talk about taxing at the marginal rate:-

http://www.hmrc.gov.uk/manuals/eimanual/eim74652.htm

and:-

http://www.hmrc.gov.uk/manuals/eimanual/eim74651.htm

So marginal rate means diferent things to HMRC and the Treasury.

Linton

zygurat789 wrote: »

The budget speech said:-

But instead of the punitive 55% tax that exists now if you try to take the rest, anything else you take out of your pension will simply be taxed at normal marginal tax rates – as with any other income. So not a 55% tax but a 20% tax for most pensioners.

And when HMRC talk about taxing at the marginal rate:-

http://www.hmrc.gov.uk/manuals/eimanual/eim74652.htm

and:-

http://www.hmrc.gov.uk/manuals/eimanual/eim74651.htm

So marginal rate means diferent things to HMRC and the Treasury.

I believe the budget statement of "marginal rate" was at best misleading, at worst just wrong. If you look at the detailed example calculations in the budget documentation you will see a lump sum drawdown is being taxed as income, so if you take more than £40K or so in one go you will definitely have some taxed at 40%.

If you think about it if you take the lump sum marginal rate statement literally it would be worthwhile someone with a £1.2M pot deliberately foregoing all other income for a year to ensure they get the whole lot out tax free. Can you see that happening?

zygurat789

Linton wrote: »

I believe the budget statement of "marginal rate" was at best misleading, at worst just wrong. If you look at the detailed example calculations in the budget documentation you will see a lump sum drawdown is being taxed as income, so if you take more than £40K or so in one go you will definitely have some taxed at 40%.

If you think about it if you take the lump sum marginal rate statement literally it would be worthwhile someone with a £1.2M pot deliberately foregoing all other income for a year to ensure they get the whole lot out tax free. Can you see that happening?

As I said in post 7, the treasury disagrees with the Chancellor, it is either at the "marginal rate" or "as income"
Given all the trumpet blowing and pontification it just has to be the marginal rate anything else is just plain untruths.
However it is possible to take your pension pot in "bites" so it should be possible for the nearer average pension pots to be taken at only the standard rate or (marginally) a bit less.
The question is do you suffer this less than 20% rate up front and forgo the income or let your beneficiaries suffer the 55% later.