Pension pot

Grouchy

I've been doing reading around the new rules shortly to come into being and just wanted to check if I have understood correctly.

For simplicity sake assume I have no other income. I am not at statutory pension age. I have a pension pot of £35,000 (I have others I will leave until normal maturity).

I can take in cash 25% of this tax free, so £8750.00 taken in April this year. I can also take £10600 tax free as this is my personal allowance. Which equals £19350 cash tax free this finacial year..

I can take £10600 in the next finanicial year tax free.

I can take the remaining Approx £5000 in the following financial year tax free.

Have I understood correctly or is the 75% after the initial 25% always taxable regardless of personal tax allowance?

Thanks

mania112

No you're right, pension income works the same way as income from earnings.

It's uses Income Tax rules which makes use of a personal allowance at the bottom.

Just FYI, if you have a state pension that uses the allowance first - and if you work that taxed before pension income too.... so the pension tax on a personal pension is taxed at your marginal /highest rate.

But in your example, yes, it would be within your allowance and tax free.

kidmugsy

mania112 wrote: »

the pension tax on a personal pension is taxed at your marginal /highest rate.

No: it's taxed as normal income. So it might be taxed at your present top rate, or it may push you into a higher rate band for part or all of it.

Talk of "marginal" in this context causes endless confusion: I blame Mr Osborne.