ok, my pension pot at present stands at £210k and may be as high as £230k by November 2016, if l am understanding your answer correctly, the first 25% of the £210k to £220k will be tax free, will the remaining 75% of my pension pot be taxed as income?
So to reduce the amount of tax i pay on this l have to reduce my tax code accordingly, namely downwards, if l am receiving my pension pot in the year 2016, do l have to reduce my tax code the year before, at present my income is a mixture of a small £5.5k/year pension from my deceased wife, small monthly pay and director dividends.
Does the above make a difference to your answer?
Thanks for your response Your understanding - that the first 25% of the full pension pot, which you estimate will be at £210K - £230K by November 2016 is correct - So a ump sum of £52500 to £57500 will be tax free.
If you then take the remaining amount, which will be between £157500 and £172500 and you already have an income of £5500 then if you take the full pot then your tax position (based on this year allowances and tax rates) to include the taxable 75% of the pension pot will be as follows
Total income for tax purposes
75% pension pot £157500 - £172500
Total income £163,000 - £178,000 No personal allowances as income in excess of personal allowance entitlement (£120,000)
Liable to tax £157500 - £172500
First £31865 x 20% = £6373
Next £118135 x 40% = £47254
£13,000 - £28000 x 45% = £5850 - £12600
Total tax due between £59477 - £66227
So from the original pot (including the 25% tax free element) from £210,000 - £230,000 you will have between £150523 and £163773 left over in your pocket, by taking 100% out of the pension pot.
This is a huge amount to lose on tax, so please do take financial advise
Yes it is a lot to pay on tax, so it seems that the new pension rules are a means of raising tax for the government, l will have to look into my options further before l may any decisions, the good thing is that l am thinking about it now.
Thanks for you answers, l will complete payment process now.