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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4083
Experience:  FCCA FCMA CGMA ACIS
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Hi. I m 65 at the end of April and have a pension pot of £10360

Customer Question

Hi. I m 65 at the end of April and have a pension pot of £10360 from my last employer which becomes available. Under the new pension legislation can I take the whole of this as a lump sum. I am not taking the state pension but already am in receipt of a civil service pension for which I pay some income tax at 20%. Is there a tax implication on taking the whole sum. thanks. mickyby
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.
Hello, I'm Keith and happy to help you with your question.

Yes, under the new pension rules recently announced you can take the whole lot out in cash. 25% will be tax free, the rest taxed at your marginal rate, so make sure you don't put yourself into the higher tax bracket for the 14/15 tax year. If necessary, draw it out in chunks to avoid this penalty.

Your small pension pot realiastion, being below 18K, is referred to as 'trivial commutation!' As you probably know you don't have to buy an annuity any more with your pot.
Customer: replied 3 years ago.

Thanks for that. I understand I do not have to buy an annuity. If I leave the 75% in the pension plan and draw down amounts each year these amounts will attract tax each time. Am I correct in this please.

Expert:  bigduckontax replied 3 years ago.
No, not quite. If you withdraw only 25% of your pot each year this will be tax free. If you draw more the amount you draw in addition is liable to tax at your marginal rate. The rest of the pot remains in its tax free status until the process is repeated in subsequent years.
Customer: replied 3 years ago.

Thanks for that guidance. Could you move the remaining 75% into an Isa without incurring the tax liability, Michael

Expert:  bigduckontax replied 3 years ago.
Sorry Michael, no; there is a commonly held misconception that an investment in an ISA is tax efficient at the time of purchase and anyway there are annual limits. This is not the case, it is only the income from the ISA which escapes tax. There are ISAs linked to pensions, but effectively you are buying an annuity, albeit of a special type.
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Expert:  bigduckontax replied 3 years ago.
Thank you for your support.