Cutting tax

Linton

zygurat789 wrote: »

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.

Its not a question of the Treasury vs HMRC. The examples showing drawdown treated as income come from the official Government paper sent out for consultation on the proposals. See here.

So yes, the sensible thing to do should you chose to drawdown rather than take an annuity is to ensure you keep below the next tax band. This of course is no different to how Flexible Drawdown works now.

zygurat789

Linton wrote: »

Its not a question of the Treasury vs HMRC. The examples showing drawdown treated as income come from the official Government paper sent out for consultation on the proposals. See here.

So yes, the sensible thing to do should you chose to drawdown rather than take an annuity is to ensure you keep below the next tax band. This of course is no different to how Flexible Drawdown works now.

The treasury and HMRC obviously mean totally different things when they say marginal, search the red book

So the whole thing has been blowen up out of all proportion. That's politics.

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?

So from April 2015 a basic rate taxpayer gets 20% relief on contributions but when he comes to take his pot he may end up paying 20%,40% and 60% on this pot thus losing out to the person who invested in an ISA.
If this same taxpayer takes a drawdown the his fund ends up paying 55%
tax before the beneficiaries receive it, again losing out to the ISA.
The only tax free option is an annuity which is being unfairly critised for low annuities. These are linked to the market interest rates which are being kept artificially low by Government policy.
What I can't see is why all the euphoria over the Chancellor RAISING tax from pensions

jem16

zygurat789 wrote: »

So from April 2015 a basic rate taxpayer gets 20% relief on contributions but when he comes to take his pot he may end up paying 20%,40% and 60% on this pot thus losing out to the person who invested in an ISA.

Yes but he could also win by arranging to take a yearly amount that keeps him below the Personal Allowance.

If this same taxpayer takes a drawdown the his fund ends up paying 55% tax before the beneficiaries receive it, again losing out to the ISA.

Not if the pension pot passes to his wife who then takes a pension from it - no 55% tax.

The only tax free option is an annuity which is being unfairly critised for low annuities.

An annuity isn't tax-free either as income from it is still taxable. Use drawdown in exactly the same way and it can be tax-free too.

What I can't see is why all the euphoria over the Chancellor RAISING tax from pensions

It's not necessarily euphoria. It's just some people being happy that the choice is yours. Use it for a yearly allowance as, after all, that's what a pension is designed to do. Or blow it all in one lot and pay more tax for the privilege of doing so.

zygurat789

jem16 wrote: »

Yes but he could also win by arranging to take a yearly amount that keeps him below the Personal Allowance.

Of course but this is only tinkering and it could take years to drawdown the whole pension pot, what a drag.



Not if the pension pot passes to his wife who then takes a pension from it - no 55% tax.

This is ONLY defering the 55%



An annuity isn't tax-free either as income from it is still taxable. Use drawdown in exactly the same way and it can be tax-free too.

All pension income is taxable, the point is there is no EXTRA tax as there is in the other two options


It's not necessarily euphoria. It's just some people being happy that the choice is yours. Use it for a yearly allowance as, after all, that's what a pension is designed to do. Or blow it all in one lot and pay more tax for the privilege of doing so.

And they are paying royally for that happiness. Are you advocating live for today, don't plan and it really does't matter if you blow your pension pot on a Lambo or lots of uneccesary taxes.
Some U-0turn from you.

So apart from a few minor points you agree.

jem16

zygurat789 wrote: »

Of course but this is only tinkering and it could take years to drawdown the whole pension pot, what a drag

It is meant to be a pension - ie retirement income.

You are not going to get the benefit of tax relief, even if only basic rate, to get to take the whole lot tax-free.

This is ONLY defering the 55%

Academic now anyway.

All pension income is taxable, the point is there is no EXTRA tax as there is in the other two options

There doesn't need to be if used in the same way as the others.

However to say that the annuity is tax-free makes no sense. Income from it is taxable and nothing is passed onto beneficiaries unless you use expensive guarantees.

However for a lot of people, an annuity is still going to be best as it does what it's meant to do - ie provide a guaranteed income for life.

And they are paying royally for that happiness. Are you advocating live for today, don't plan and it really does't matter if you blow your pension pot on a Lambo or lots of uneccesary taxes.
Some U-0turn from you.

How on earth do you come to that conclusion?

To me a pension is something that gives you an income for life, whether through the relative safety of an annuity or with more risk, through drawdown.

For those that preferred drawdown, the removal of the possible 55% tax if passing onto children as opposed to a spouse, has been removed.

For those that want to plug the gap between early retirement and NRA for Defined Benefit schemes, it's good because you can now use a PP/SIPP for that and drawdown the whole lot over the small number of years.

For those that will blow the whole lot with one lump sum, then it's bad news although they won't think so.

kidmugsy

There was use of the expression of "marginal tax" in the budget that was potentially quite misleading. I presume that some of the poor writing and checking implies that the work was kept to a small group inside the Treasury to prevent leaks.

zygurat789

kidmugsy wrote: »

There was use of the expression of "marginal tax" in the budget that was potentially quite misleading. I presume that some of the poor writing and checking implies that the work was kept to a small group inside the Treasury to prevent leaks.

I think the expression "down right b****y untruth" is nearer the mark. It is small wonder to me why our economy never fails to underperform with idiots like that running it.

jimmo

zygurat789 wrote: »

I think the expression "down right b****y untruth" is nearer the mark. It is small wonder to me why our economy never fails to underperform with idiots like that running it.

Going back to the late 60s/ early 70s, my early days as a taxman, it took at least a month after the budget for the “spin” to be superseded and the true facts to emerge.
Not a lot seems to have changed.