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bigduckontax, Accountant
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Im thinking of cashing in a pension fund 170K and buying

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Hi, Im thinking of cashing in a pension fund 170K and buying property as an alternative investment, as this should provide a better return. Im conserned about paying large amounts of tax. Im self employed. any advice welcomed. thanks Mike
Hello Mike, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Of you liberate a 170K pension fund 42.5K will be tax free and the remaining 127.5K taxed at your marginal rates of tax. This could well put you into the 40% and even the 45% tax bracket and if your total income goes over the 100K then you will loose your personal allowance at the rate of a pound for every two quid over. You will also have to take into account the charges that your pension fund will impose which could well be a minimum of 5%, say 10K or as high as 20% (34K). The solution is to stagger the liberation over two or more tax years to spread the tax exposure. Your age is of importance. Here is the Pensions Advisory Service advice: 'If you are suffering from ill health it is possible to access funds before age 55 from your current pension scheme. But for the majority, promises of early cash will be bogus and are likely to result in serious tax consequences. If you access your pension benefits before the age of 55, HMRC will consider this as an unauthorised payment. Unauthorised payments are subject to high tax charges by HMRC, which you cannot reclaim. These are at least 55% and can be as high as 70% of the pension pot.' So you see Mike that there are a lot of pitfalls in pension liberation. If you are under 55 forget it, over 55 think about it, but it can be pricey moving from a tax free to a taxable environment. You shoul move very carefully on this one. Those are the general principles, but I am not licenced to provide more detailed pension advice. I do hope that I have been able to shed some light on your proposal.
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