Tax Free Lump Sum and 2025 Budget

snowlaser

Albermarle said:

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.

Sorry that's a work jargon thing - I work in the pensions industry and we use "retire" to mean "draw your pension benefits": we don't really know or care whether the person is still working in their job or not!  

Pat38493

Albermarle said:

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.

In the past when things like were done, some kind of protection was put in place - the obvious thing would be that anyone who is already above the new lower limit, and within certain date/age restrictions, can apply for a protection certificate to "lock in" either their current amount, or the existing maximum amount.  Typically if changes like this are made, the government will need to put in some mitigations for anyone who could be suddenly faced with a big change in their financial situation with no time to prepare.

Something similar to this was done under the old lifetime allowance system where some people could get protection at a higher limit.

Of course this also illustrates why this is not a silver bullet to solve short term cash flow issues for the government  unless they do it very brutally as you say and potentially hammer some people with huge unexpected tax bills on a short term basis.

Albermarle

snowlaser said:

Albermarle said:

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.

Sorry that's a work jargon thing - I work in the pensions industry and we use "retire" to mean "draw your pension benefits": we don't really know or care whether the person is still working in their job or not!  

No problem. It is just we sometimes have posters on the forum, who seem to think retiring and taking their pension are directly linked together, when in most cases they are not.
Or they refer to the state pension age as the UK retirement age, when such a thing no longer really exists.

Cobbler_tone

snowlaser said:

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 

  irony at its finest! 

michaels

QrizB said:

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.

Thanks.

Can we assume the same is true for index linked gilts?

FIREDreamer

michaels said:

QrizB said:

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.

Thanks.

Can we assume the same is true for index linked gilts?

Yes that is correct.

leosayer

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.

There was a proposal back in the George Osborn era for a new pension pot regime that gave 25% tax relief on all contributions (up to an annual limit) and no income tax on drawdown.

In the end they abandoned the idea of replacing DC/SIPP schemes with this and gave us the LISA instead.

sgx2000

"Carry forward"  Would seem an obvious choice for Labour, as it really only affects high earners 

ali_bear

leosayer said:

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.

There was a proposal back in the George Osborn era for a new pension pot regime that gave 25% tax relief on all contributions (up to an annual limit) and no income tax on drawdown.

That would have been too advantageous for the lower paid and not for the higher paid. 

There was also a proposal for a wealth tax, but Cameron quashed it because he felt the Tory party donors would not be happy. Posh a***. 

Cobbler_tone

There will always be the winless debate of what constitutes 'wealth' when it comes to earnings. For some it might be those (increasing numbers) falling into 40% tax. For others it might be those falling into 45% tax and others it might mean if you earn over £500k a year. There are always diminishing returns when you enter subsequent brackets.
Wonder how a footballer on £100k a week feels after handing half over on his payslip, after maxing his pension? There have been leaked payslips online and they do pay it, as you'd hope. There are some contracts where they negotiate net pay deals so I guess that offers a different mindset. Does make me chuckle that despite multi million pound contracts you still hear "It's a short career".  ....I don't begrudge it though as I don't have thousands of people watch me at work. You also need a good IFA if you aren't going to invest in property abroad, maxed your pension and filled your ISA.   

It is all relative and don't think that anyone really enjoys big tax bills. They'd never change the system to make higher earners winners, considering that is where the bulk of taxes are generated. 
The dangerous line I guess is trying to tax the highest earners even more, to tax those (e.g. on less than £35k) less....and I give you Reform.