Circulate 25% TFLS

deepam

Hi,

Hi,

I am thinking of taking 25% tax free lump sum from my pension as being worried that the cap might get reduced this budget to 40K.

My tax free lump sum would be around 75K. Since taking TFLS does not reduce my annual allowance of 60k, is it possible to invest 75K back into the pension in span of 3-4 years? 

xylophone

https://techzone.aberdeenadviser.com/public/pensions/tech-guide-recycle-tax-free-cash

deepam

xylophone That is a good link

chuffinnora

Plenty of the pro's on here will tell you that its almost zero chance of the TFLS reducing and most likely certain zero to 40k or even 75k.

Also be very aware of recycling rules and the 5 year period.

cfw1994

No pro here, but I would agree that even if something was tweaked, my *personal* guess is it would not affect someone with less than a 400k pot 🤷‍♂️

On the other hand, if you were a couple, you could easily reinvest 75k by next April into ISA post (£20k each either side of the tax year).  In theory, that could be invested in just the same funds as the pension, but would likely give you easier access to the money should you have a sudden need (burst boiler, new car etc).  
The remainder would all be in a “taxable as income” drawdown pot and you would know exactly what tax would be due when you start drawing down.

Albermarle

deepam said:

Hi,

Hi,

I am thinking of taking 25% tax free lump sum from my pension as being worried that the cap might get reduced this budget to 40K.

My tax free lump sum would be around 75K. Since taking TFLS does not reduce my annual allowance of 60k, is it possible to invest 75K back into the pension in span of 3-4 years? 

There is speculation ( and that is all it is) of a reduction in the TFLS limit, although it seems unlikely. I have never seen this figure of £40k before though, where did you get that from.
The normal advice is not to do anything based on speculation and that is the advice to follow 

Dazed_and_C0nfused

Albermarle said:

deepam said:

Hi,

Hi,

I am thinking of taking 25% tax free lump sum from my pension as being worried that the cap might get reduced this budget to 40K.

My tax free lump sum would be around 75K. Since taking TFLS does not reduce my annual allowance of 60k, is it possible to invest 75K back into the pension in span of 3-4 years? 

There is speculation ( and that is all it is) of a reduction in the TFLS limit, although it seems unlikely. I have never seen this figure of £40k before though, where did you get that from.
The normal advice is not to do anything based on speculation and that is the advice to follow 

I think £40k had featured on one website, but it's no doubt nothing other than a figure someone has plucked from thin air.

CorseyEdge

I believe the £40k reduction to TFLS was from Torsten Bell (now Pension Minister) back in 2019 when head of Resolution Foundation.

A report he co-authored quoted “Capping the tax-free lump sum at £40,000 would raise £2 billion a year while leaving three quarters of future pensioners unaffected.”

That was picked back up last month by a few of the newspapers when he was brought in to aid the Chancellor prepare the autumn statement. 

ali_bear

I think it more likely that the chancellor will sprout horns and a forked tongue at the dispatch box. 

RogerPensionGuy

CorseyEdge said:

I believe the £40k reduction to TFLS was from Torsten Bell (now Pension Minister) back in 2019 when head of Resolution Foundation.

A report he co-authored quoted “Capping the tax-free lump sum at £40,000 would raise £2 billion a year while leaving three quarters of future pensioners unaffected.”

That was picked back up last month by a few of the newspapers when he was brought in to aid the Chancellor prepare the autumn statement. 

That 40K headline is just such a massive shift from was it 250Kish back in 2019, staggering in fact, but maybe it shows collective views in that organisation.

Reference various moving cliff edge decisions and taxes come to my mind. 

LTA. Was it 1.5M, 1.8M, 1.2M, 1M & ended on 1.073M and then scrapped.

CGT allowance. Was it 12.3K, 6K and now 3K. That's more that a 75% reduction in just a few years. 

CGT Rate. Has just gone up 80% for 20% income tax payers and 20% for 40% income tax payers. 

The above are just a few cliff edges that have moved very aggressively these past few years. 

I've read, watched and listined to lots of outputs about potential changes in general and obviously much more about pre budget times like now, one feedback that seems consistent is from a technical point of view a change to LSA of 268K will be very easy to implement. 

Altho I'm 99% feeling the 268K won't be reduced, if they were to reduce that number, I'm guessing we would see typically higher paid people put less in pensions and thus income tax revenue will go up a tad, plus the net cash with people today will tend to spin quickly in to the economy, maybe a nice short term boost for the country. 

Closely linked to this is setting a flat rate of tax relief on pension contributions to spool up the economy. 

chuffinnora

In some way I would have less of a preference for a flat rate relief.

I get the argument in that 40% benefits the better paid now, and say a 30% flat rate would shift some of the pension wealth to the lower paid...but would it really benefit the tax take as much as they want? 

Lets face it, a change like that is not to help the workforce, its so they can increase the tax take.
Anyone who's planning on taking pension funds at the 40% rate would clearly be losing out.