British Steel Buy Out Option - Small Pots Rule

xylophone

I have been thinking about this.
This is a payment from DB Scheme not a DC Scheme.
The MPAA relates to sums taken from a flexibly accessed  DC pension.
A pension taken from a DB Scheme does not trigger the MPAA.
You could always give HMRC a ring?

munchieblue

Still no clear answer - Barnett Waddingham said closing the DB scheme had no affect on my future pension contributions tax relief. Wasn't convinced as I asked if there was a limit on the size of the pot to cash out and he wasn't clear. When I spoke to HMRC all he could advice on was the tax I would pay for the cash pay out which wasn't what I was asking.
Not sure if it's worth the potential issues - I'm a higher rate tax payer but don't complete a self assessment. Barnett Waddingham pay the money in to my account at 20% - I assume I would be required to complete a self assessment to pay the difference for the higher rate tax?

Marcon

munchieblue said:

Still no clear answer - Barnett Waddingham said closing the DB scheme had no affect on my future pension contributions tax relief. Wasn't convinced as I asked if there was a limit on the size of the pot to cash out and he wasn't clear. When I spoke to HMRC all he could advice on was the tax I would pay for the cash pay out which wasn't what I was asking.
Not sure if it's worth the potential issues - I'm a higher rate tax payer but don't complete a self assessment. Barnett Waddingham pay the money in to my account at 20% - I assume I would be required to complete a self assessment to pay the difference for the higher rate tax?

You need to specify that you want this cashed in under the small pots rule (and it is under £10K and comes from an occupational scheme, so no reason it wouldn't. There is no limit on the number of 'small pots' you can cash from occupational, as opposed to personal pensions). It's a payment from a DB scheme, so won't impact on your tax relief on future contributions to DC arrangements, but if the Lifetime Allowance ever troubles you, small pot amounts don't count towards the LTA. 

Yes, it will need to be included on your self assessment form.

xylophone

Let's say the gross value of the small pot is £5000.
 The recipient is entitled to 25% tax free - £1250.
The remaining £3750 (income in year of receipt) will be paid net of 20% tax.  £3000.
If the recipient is a higher rate tax payer he contacts HMRC.

https://www.gov.uk/government/organisations/hm-revenue-customs/contact/income-tax-enquiries-for-individuals-pensioners-and-employees