Tax Free Lump Sum and 2025 Budget

LHW99

michaels said:

From the (revenue) govt point of view, as long as people are saving enough that they don't qualify for benefits in retirement (state pension plus compulsory employer ad employee contribution?) then any further pension saving beyond that is a bad thing, it definitely defers and also decreases overall tax take not just income tax but also potentially VAT if money received now is spent now rather than saved which also boosts GDP in the near term.

So the fiscal economics is very clear, bring in polices to discourage pension savings beyond the minimum compulsory level.  So less tax breaks on the way in for pensioners and perhaps even give public sector workers the option of taking taxable income now at the expense of less generous pensions later....

Sounds like the sort of levelling down that has been going on in many fields for decades.

No one will aspire to the lowest common denominator unfortunately.

MeteredOut

JoeCrystal said:

The right for HMRC to collect taxes are always retrospectively. I remember reading one article saying that if the Government ever failed to pass budget regarding the income taxes which is still temporary, they will have to refund all the incomes taxes already collected during the year, not sure how true that is!

This sounds like the sort of "article" Auntie Jeanie reposts after reading it on facebook. The same sort of article that says you don't have to pay council tax if you declare yourself a freeman of the land.

Unless you can link to it?

roadweary

I did read quite a few other posts before I started this thread.  And I have seen a lot of new points of view on this one that I hadn't seen before.  Having a limited understanding of how things work, I thought this forum was the right place to ask others for advice

michaels

FIREDreamer said:

bonnyrigger said:

I wonder if instead of touching the TFLS they might look at setting TR at a flat 25%.  Chatty took 45 seconds to estimate a saving of £10 billion a year, but it would actually be beneficial to large majority of workers.
I suspect it's never talked about as the financial journalists would be among the losers.

Why would a 40% taxpayer pay into a pension (beyond maybe that needed for employer match) on that basis? An effective 15% tax charge on the contributions when made and at least 20% tax on the pension at the end. 

They would just use an ISA or possibly something like VCT / EIS instead for 30% tax relief and tax free thereafter on the VCT / EIS.

And how do you deal with employer contributions (and salary sacrifice) and even more complicated defined benefit accrual?

EDIT: I retired last year, am a higher rate taxpayer due to high annuity rates that I locked in, so no skin in this game apart from the £3,600 round robin going forwards which is peanuts and neither here or there. Would be throwing money away if doing that if only getting 25% relief.

40% tax reduced to 35% (15% + 20%) is exactly the same benefit as a standard rate taxpayer gets once the TFLS is included (20% to 15%) and of course the higher rate taxpayer will get the TFLS on top so actually the higher rate taxpayer still gets 40% reduced to 30%.

And any that is taken up front at 40% is a massive win for the govt right now when money is tight.

Sal sac?  Just declare all employer DC contributions above the the legal minimum (3%) are to be treated as personal contributions from income rather than employer conts.

JoeCrystal

MeteredOut said:

JoeCrystal said:

The right for HMRC to collect taxes are always retrospectively. I remember reading one article saying that if the Government ever failed to pass budget regarding the income taxes which is still temporary, they will have to refund all the incomes taxes already collected during the year, not sure how true that is!

This sounds like the sort of "article" Auntie Jeanie reposts after reading it on facebook. The same sort of article that says you don't have to pay council tax if you declare yourself a freeman of the land.

Unless you can link to it?

If I remember correctly, it is related to the Provisional Collection of Taxes Act 1968, in which HMRC get a temporary permission to collect taxes until the actual Finance Act is passed. It is related to the fact that Income Taxes are still temporary and always get renewed. That particular resolution granting HMRC is always passed without debate as soon as the Budget is over, but it is only seven months. In theory, if the Finance Act is not passed, the temporary permission will expire automatically. Needless to say, the government will never fail to pass the Finance Act. I read it on BBC article few years ago as there is very slight chance that it was not going to get passed due to minority government at the time so I might have a look through BBC News when I get a chance.  It is one of these details that was so bizarre that I never forgotten about it.

MallyGirl

roadweary said:

I did read quite a few other posts before I started this thread.  And I have seen a lot of new points of view on this one that I hadn't seen before.  Having a limited understanding of how things work, I thought this forum was the right place to ask others for advice

It is a great place to come and ask questions and get answers but it will not be 'advice' as that is a regulated activity for qualified professionals. There are many knowledgeable people on here who can help you improve your understanding 

snowlaser

Firstly the government CAN do pretty much anything it likes.  They could turn up tomorrow with a compulsory purchase order to buy your house, they could abolish the entire pensions system, they can declare war on Russia ... they can do whatever they want.

Secondly random people on an internet forum guessing what the government WILL do is totally speculation.  Use it at your peril.

Thirdly, if I had to guess I'd guess the most likely change it would be to reduce the maximum lump sum of £268k to some lower and rounder figure such as £100k.  It could be done immediately, except perhaps for anyone who has already requested retirement before the budget but it hasn't quite been paid yet.  That isn't impossible.  Equally what exactly is at stake here - 20% tax on £168k?  That's £33k.  So not pocket change but I would be wary of taking some irrevocable action based on speculation that MIGHT save £33k or might be something you later regret.

Albermarle

It could be done immediately, except perhaps for anyone who has already requested retirement before the budget but it hasn't quite been paid yet.

You can take the TFLS currently at any time after 55; whether you have actually retired from your job or not is irrelevant ( except in a few niche professions maybe).

Just as an example I retired 4 years ago, but did not take any TFLS until earlier this year.. Then only a portion of it.
There will be lots of people, with all kinds of different scenarios, so it would be very messy to implement any reduction, unless it was done very brutally.

michaels

If I were to take the tfls and potentially it then be unwrapped I might use the money for my index linked gilts ladder. These obviously pay a coupon plus the inflation adjustment on maturity.

Does anyone know how these are taxed?  Do the coupons count as interest income and the difference between purchase price and value at maturity count as a capital gain?

QrizB

michaels said:

If I were to take the tfls and potentially it then be unwrapped I might use the money for my index linked gilts ladder. These obviously pay a coupon plus the inflation adjustment on maturity.
Does anyone know how these are taxed?  Do the coupons count as interest income and the difference between purchase price and value at maturity count as a capital gain?

MSE has an article:

https://www.moneysavingexpert.com/savings/uk-gilts-lower-tax-savings/

Coupons are taxed as interest. Capital gains are tax-free.