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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I have a further question regarding my private pension pot

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I have a further question regarding my private pension pot of £400k.In view of the new rules coming into effect in April I am considering taking a drawdown pension. If I do so can I take 100k "tax free" as a lump sum and then pay income tax at normal rates on any futher withdrawals from the remaining balance of £300k ? My query arises as a result of a comment made on the internet that under the new rules if I were to put my pension pot of £400k into a drawdown pension in the next tax year I could take £100k tax free but I would have be subject to income tax at my normal rates on the balance of £300k in that same tax year. Is this correct? PS For your background information I am currently drawing an enhanced State Pension of over £20k per annum so I qualify for a drawdown pension under the current rules under which I believe I could take £100k as a tax free lump sum and only pay income tax as and when drawing sums from the balance £300k. I would be grateful if you could clarify these issues.PPS In case further clarification is required I would plan to take a flexible drawdown pension via Canada Life who are currently holding my pension pot. I presume they are "pension providers" approved by HMRC and ?might deduct 25% tax on drawdowns in the same way as Banks and Building Societies do on share dividends?

Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.

Hi.

There still seems to be some confusion over this based on what I've read on the internet and in publications I've read over the last 6 months or so.

My understanding is that from 6 April 2015, if you elect for flexible drawdown and have a defined contribution pension scheme as opposed to a defined benefit plan, you can take your £100,000 tax free cash as a PCLS (Pension Commencement Lump Sum) and leave the rest of the fund to be taken fully as income and taxed as such as you require in the future. The notes under the heading "The cash lump sum (PCLS) and tax" here would appear to support my understanding of the rules. I guess it wouldn't be called flexible drawdown otherwise. You ought to discuss your options with your pension plan provider or an independent financial adviser before you commit to a course of action.

I hope this helps but let me know if you have any further questions.

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