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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15915
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I have a private pension pot of approximately £60000 which

Resolved Question:

I have a private pension pot of approximately £60000 which I have not made any contribution to for 3 years + as I now have a works scheme . I wish to cash in this pension but am not sure if I will be liable for tax on the funds .
I am a UK tax payer and expect to earn approximately £ 40,000 pre tax income this year . Could you please advise ?
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

Can you tell what your age is please.
Customer: replied 2 years ago.

46 years old

Expert:  TonyTax replied 2 years ago.
Thanks.

Leave this with me while I draft my answer.
Expert:  TonyTax replied 2 years ago.
Hi again.

Take a look at the notes here and here on so called pension liberation.

The earliest date that you can draw on your pension, short of being in a particular job such as the Police or the Fire Service or in serious ill health is at age 55. If you cash it in before that, you will face a tax charge of at least 55%. Pension funds grow in a tax free environment and are meant to be drawn on later in life and so the government tries to discourage early encashment. There are lost of companies offering pension liberation before age 55 and they will charge a huge fee and won't mention the tax charge. Steer clear of them.

The earliest you can start to draw on your pension fund without being taxed at the penal rate mentioned above is 55. After 5 April 2015, the world of pensions is being massively reformed and you won't have to use most of your fund to buy an annuity unless you wish to. You'll have several choices including taking all the fund at once with 25% being tax free and the rest taxed at your top rate of tax or by drawing down on it gradually over time. Take a look here for more information on the options you will have at age 55 assuming the rules are the same then. Of course, you don't have to do anything at age 55 if you don't wish to.

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