A note to all current or prospective clients on the Pension changes and how they relate to our speciality for SSAS pension schemes as a tax saving measure.
Pension savers can now withdraw up to 25% of their total pension pot tax free from the moment they turn 55. This can be done immediately for a large lump sum payment or they can withdraw smaller sums over a number of years and receive 25% of each small withdrawal tax free.
Money taken in excess of this 25% tax free sum is treated as normal income, so a saver can withdraw up to £10,000 per year at current personal allowance rates from their pension without paying a penny of tax if they’ve taken the 25% lump sum or £13,333.33 each year as a smaller lump sums (after the 25% tax free leaving taxable income of £10,000)
Contributions to your pension
Pension contributions are capped at £40,000 as of now. In the future, should you withdraw from your pension fund beyond the tax free lump sum, this cap will be automatically lowered to £10,000 of contributions in a year, which is one restriction preventing savers treating this as a separate bank account.
There are exemptions allowing ‘small pot’ withdrawals of £10,000, which are either limited to three for a personal pension or unlimited for an occupational pension.
Inheritance tax on passing on your pension
The new tax rules on inheritance tax are as follows:
If you die before 75 your beneficiaries can take the entire pension as a tax free lump sum, trade it for an annuity, or use the income drawdown explained above (Without the 25% tax free amount).
If you die after 75 three options are available:
- Take the sum as cash at a 45% tax rate.
- Take income drawdown as above (without the 25% tax free amount).
- Annuities can now be transferred to a spouse or partner after you die. If you die before the age of 75 this will be a tax free transfer.
- Pension advice can now be sought for free by the Citizen’s Advice Bureau and the Pensions Advisory Service.
- Final salary pensions can be transferred to a pension scheme that operates under these new rules.