25% tax free pension cash

Skibunny40

I have 3 different personal pensions and will be able to take them at 55, a couple of years away yet and I probably won't retire at that point but will continue working.
Can I take the 25% tax free cash from one each year for 3 years, without touching the rest? My logic is that each lump of tax-free cash would part or fully fill a S&S ISA each year, meaning it stays invested tax-free the whole time. Just in case the tax-free rules change again

bjorn_toby_wilde

Yes, you could, but it would mean that the remaining 75% of those pensions would be crystallised. Once crystallised that portion is taxable and so is any subsequent growth on it.

Skibunny40

Thanks for the reply - so even if I don't touch the 75% and it remains invested in the pension fund, I'd have to pay tax on it? Would it be classed as income or capital gains tax?
 Would this be taken by the pension company, or would I need to declare it as self-assesment? 

Albermarle

Skibunny40 said:

Thanks for the reply - so even if I don't touch the 75% and it remains invested in the pension fund, I'd have to pay tax on it? Would it be classed as income or capital gains tax?
 Would this be taken by the pension company, or would I need to declare it as self-assesment? 

Withdrawals from this 75% would be subject to income tax in the same way as employment and other income.
The pension provider will be issued with a tax code from HMRC, and they will take tax off the withdrawals appropriately, just like an employer would.
Often they will take too much tax initially, but it will be sorted out later. This can be more of a problem if you make random ad hoc withdrawals, as the system assumes you will take these amounts every month for the rest of the tax year. In the end though you will get any overpaid tax back.

AlanP_2

It would be classed as income and the tax would be payable as and when the money was withdrawn by you. Whilst inside the pension there is no tax due.

Dazed_and_C0nfused

bjorn_toby_wilde said:

Yes, you could, but it would mean that the remaining 75% of those pensions would be crystallised. Once crystallised that portion is taxable and so is any subsequent growth on it.

Op, this is when it's taken out of the pension, not whilst it's still in the pension.

Skibunny40

I know that when I withdraw any of the 75% remaining of the pension, that it is subject to income tax. But bjorn_toby_wilde said that the remaining 75% would be liable to tax even if I didn't withdraw it? Or have I completely misunderstood?

AlanP_2

Skibunny40 said:

I know that when I withdraw any of the 75% remaining of the pension, that it is subject to income tax. But bjorn_toby_wilde said that the remaining 75% would be liable to tax even if I didn't withdraw it? Or have I completely misunderstood?

He didn't actually say that he said it was taxable which it is and tax would be paid when withdrawn as you anticipated.

Any growth in the value of that 75% would also be taxable when withdrawn as the TFLS has already been taken. 

ali_bear

Skibunny40 said:

.... Just in case the tax-free rules change again

There has been a lot of talk and speculation about changes in the tax rules,  especially relating to the tax free lump sum of pensions. What is clear is that removing or even reducing the tax free amount would affect a huge number of people - probably everyone near retirement age. So it is very unlikely that a reduction in the TFLS would be brought in without a lengthy period of consultation, if indeed at all. 

Skibunny40

Thanks to everyone who clarified re income tax