25% Cash in & Re-invest

JohnR61

I'm under the impression that with the budget looming this may be the last month where people over 55 will be able to take up to 25% of their pension as a lump sum without suffering tax. Now what's to stop me taking this amount out now, hold it until the new tax year and re-input as contributions and get another round of government tax relief?

Or am I misguided?

dunstonh

I'm under the impression that with the budget looming this may be the last month where people over 55 will be able to take up to 25% of their pension as a lump sum without suffering tax.

Apart from the media speculation, that has appeared every year since 1988 (when the figure was set to 25%) what official information have you read that says that the tax free cash that was introduced in 1907 is going to be abolished?

Now what's to stop me taking this amount out now, hold it until the new tax year and re-input as contributions and get another round of government tax relief?

In the case of full fund withdrawals, the pension recycling rules could come into play as could the reduced annual allowance (MPAA). You dont state the amounts involved but both there are mechanisms to prevent it on all but the smallest values.

What if the Govt make the whole lot tax free? You would have paid tax unnecessarily on a full fund withdrawal.

Or if PCLS is increased from 25% to 30% or higher? (you wont get a second bite if you have already done it at 25%.

There is as much speculation that the pension ISA style could come in as there is that the 25% PCLS could be abolished.

JohnR61

Thanks for the reply, The 25% tax free withdrawal has come from my boss's pension investment firm who says this may be abolished, of course speculation.

I'm unaware of the pension recycling rules but a 25% withdrawal from my pot will only be about 14K.
Obviously this is all speculation as to what may be in the budget.

If PCLS remains the same or is made a flat rate for everyone is again speculation, but how would the Gov't be able to check if the funds deposited after April say were the proceeds of a previous pension withdrawal or simply saving from under the mattress?

Thanks for your reply.

kidmugsy

Suppose the 25% TFLS is preserved, but a 33% tax rebate is introduced for contributions from 17/18 onwards. Then you might do very well by taking your TFLS in 15/16 and recycling it in a couple of years' time. It's all speculation.

I strongly doubt that any restriction on TFLS would be introduced on March 16th for application in the reminder of 15/16. But you never know.

Paul_Herring

The 25% tax free withdrawal has come from my boss's pension investment firm who says this may be abolished, of course speculation.

It would be political suicide for any chancellor to back-date abolishment of the PCLS - i.e. on funds already contributed upon which people had a reasonable expectation of receiving it at the time the contributions were made.

Abolishing it on future contributions on the other hand is another matter (e.g. by explicitly abolishing it going forward, or by the mooted pension ISA.)

zagfles

JohnR61 wrote: »

Thanks for the reply, The 25% tax free withdrawal has come from my boss's pension investment firm who says this may be abolished, of course speculation.

If they do abolish it it would almost certainly be just for new contributions. Theoretically the govt could do anything, even impose a 100% tax on all pension withdrawals, but they don't generally apply tax retrospectively.

I'm unaware of the pension recycling rules but a 25% withdrawal from my pot will only be about 14K.
Obviously this is all speculation as to what may be in the budget.

If PCLS remains the same or is made a flat rate for everyone is again speculation, but how would the Gov't be able to check if the funds deposited after April say were the proceeds of a previous pension withdrawal or simply saving from under the mattress?

Thanks for your reply.

Few examples: https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133850

http://adviser.royallondon.com/pensions/technical-central/information-guidance/contributions-and-tax-relief/recycling-of-tax-free-cash/

dunstonh

My gut tells me that PCLS is not going. It only costs £2.5 billion a year to the treasury and has existed over 100 years and is popular with consumers and one of the few bits about pensions that is easy to understand. Would the chancellor abolish something so popular for the sake of £2.5bn when there are far easier targets?

Salary sacrifice/NI avoidance through pensions is costing £13.8 bn and that seems an easier target (and that £13.8bn doesnt include benefits gained by lowering income). It is has the highest rate of growth in terms of cost to the treasury on a year by year basis since 2001

Tax relief costs £27 billion (not the widely mentioned £34bn which includes investment income tax free within pension funds at £7bn). He could move to a flat rate which benefits basic rate taxpayers whilst removing higher rate and highest rate and still shave a few billion off to reduce the deficit.