25% Tax Free Lump Sum Pre Budget

philng

I am due to take my DB Pension in January which also has a significant Tax Free Lump sum in excess of £100k which I built up in linked AVCs through my working life always planning to use these as the Tax Free part of my pension.

I have contacted the Pension provider to see if I could draw say 3 months early to beat the budget potential of a drop in Tax Free Lump sum allowable but they say it is now too late process.

What are the chances of Reeves slashing the Tax Free lump sum with immediate effect after the budget? If she does I feel that would be grossly unfair on people who have planned carefully throughout their life to have the rules changed at the last minute.

Albermarle

philng said:

I am due to take my DB Pension in January which also has a significant Tax Free Lump sum in excess of £100k which I built up in linked AVCs through my working life always planning to use these as the Tax Free part of my pension.

I have contacted the Pension provider to see if I could draw say 3 months early to beat the budget potential of a drop in Tax Free Lump sum allowable but they say it is now too late process.

What are the chances of Reeves slashing the Tax Free lump sum with immediate effect after the budget? If she does I feel that would be grossly unfair on people who have planned carefully throughout their life to have the rules changed at the last minute.

There is a lot of fevered speculation about the budget. Most of it will be wrong.
The maximum tax free lump sum has already been eroded significantly by inflation in the last few years, and probably that is how it will continue.

dunstonh

What are the chances of Reeves slashing the Tax Free lump sum with immediate effect after the budget?

non-existent to extremely low.

There is already a cap on tax free cash and Labour have said they are happy with the current level.     Yes, they could flip flop again but that will only hurt small savers/investors when they are targeting higher wealth.

The current cap suits Labour as its hard set to have fiscal drag and they don't need to take any political hit by dragging it lower. 

Ivkoto

Something you might find useful ⬇️⬇️⬇️


https://youtu.be/UgwdBMFnCQ8?si=HLq4lamAqxe1L8E1

pterri

philng said:

I am due to take my DB Pension in January which also has a significant Tax Free Lump sum in excess of £100k which I built up in linked AVCs through my working life always planning to use these as the Tax Free part of my pension.

I have contacted the Pension provider to see if I could draw say 3 months early to beat the budget potential of a drop in Tax Free Lump sum allowable but they say it is now too late process.

What are the chances of Reeves slashing the Tax Free lump sum with immediate effect after the budget? If she does I feel that would be grossly unfair on people who have planned carefully throughout their life to have the rules changed at the last minute.

philng said:

I am due to take my DB Pension in January which also has a significant Tax Free Lump sum in excess of £100k which I built up in linked AVCs through my working life always planning to use these as the Tax Free part of my pension.

I have contacted the Pension provider to see if I could draw say 3 months early to beat the budget potential of a drop in Tax Free Lump sum allowable but they say it is now too late process.

What are the chances of Reeves slashing the Tax Free lump sum with immediate effect after the budget? If she does I feel that would be grossly unfair on people who have planned carefully throughout their life to have the rules changed at the last minute.

I think very unlikely, it would have so many negative effects. It would set an awful precedent and perhaps even be challengeable  in court? If you plan for a few years based on legislation then changing it needs to be over a few years, like the idea of 10yrs for any  SP age change. IF there is a change I really doubt it would be before April, like others have said, just let inflation erode it. Jeremy Hunt started that, they just need to leave that alone. A
so doubt they will reintroduce the LTA or at least reintroduce it at well north of £1m. If not lots of docs and other ‘professionals ‘ will jump as they will have chucked lots of dough into their pensions/avc/additional SIPPS. I would, amazingly I’m more or less at £1m due to the way DBs are valued

grant9876uk

They have said they wont remove the tax free lump sum but not said if they might reduce it. There is a real risk it could drop from the current 260Kish  level to a lower figure( 200 or 150 might not surprise me).   I have seen that there is a 30 day cooling off period with my pension provider. I have just moved 230K out of my pension tax free but if the rules dont change it appears I can move it back within the 30 days.   It seems this is a very real way of protecting your pot in advance of budget day.....    Also if you dont take any taxable money out - just the lump sum you can still continue to put into your pension at the current rate. It only drops to £10K if you take any taxable income. If you are at or near or over the £1.06M limit then this is a very good move.   Check with your provider to see if they have the same 30 day rule.

m4rkje

grant9876uk said:

They have said they wont remove the tax free lump sum but not said if they might reduce it. There is a real risk it could drop from the current 260Kish  level to a lower figure( 200 or 150 might not surprise me).   I have seen that there is a 30 day cooling off period with my pension provider. I have just moved 230K out of my pension tax free but if the rules dont change it appears I can move it back within the 30 days.   It seems this is a very real way of protecting your pot in advance of budget day.....    Also if you dont take any taxable money out - just the lump sum you can still continue to put into your pension at the current rate. It only drops to £10K if you take any taxable income. If you are at or near or over the £1.06M limit then this is a very good move.   Check with your provider to see if they have the same 30 day rule.

Out of interest, were you able to move the 230k back into your pot? Looks like that facility/loophole has now been removed late December 2024…

phlebas192

philng said:

I am due to take my DB Pension in January which also has a significant Tax Free Lump sum in excess of £100k which I built up in linked AVCs through my working life always planning to use these as the Tax Free part of my pension.

I have contacted the Pension provider to see if I could draw say 3 months early to beat the budget potential of a drop in Tax Free Lump sum allowable but they say it is now too late process.

What are the chances of Reeves slashing the Tax Free lump sum with immediate effect after the budget? If she does I feel that would be grossly unfair on people who have planned carefully throughout their life to have the rules changed at the last minute.

I'll add my voice to those that say the chances are somewhere between non-existent and extremely low, at least to the extent that it would impact you. I guess there is a chance that the lump sum allowance might be reduced by a modest amount (eg to £250k or even £200k) but the idea that it would be slashed by more than half is only entertained by those who indulge in fantastical catastrophe thinking or are paid to sow fear. All chancellors of whatever party will likely be more than happy to just let inflation erode the value. That said, by creating a lump sum allowance that is divorced from any other pension measure, Hunt did make it easier for chancellors to tinker with it - reducing the LTA would have been much more politically damaging given the impact on consultant doctors, etc.

I would also add that even if Reeves was thinking of any such thing it would make more sense to announce that it would come into effect some time in the future since it would boost short term tax receipts for people to take TFLSs now that they don't actually need (since it would boost tax receipts from CGT/dividend/interest/VAT taxes). Mind you, the same could have been said for last year's increases to CGT rates which were introduced immediately rather than announcing a rise from the following April and they went for the option that would reduce immediate tax receipts....