Professional Renaissance Limited is a limited company registered in England under company number 6380089. Our registered office address is: The Business Store, 98-100 High Road, Rayleigh, Essex, SS6 7AE.
Tax year end 2016
The Budget 2016
Tax dates 2016/17
Without careful planning you could end up paying 40% or 45% tax on a large pension withdrawal.
Individuals now have the option to keep their pension invested in retirement and withdraw cash as required. However, this freedom has given rise to hidden dangers and increased the likelihood of people making poor decisions.
One such danger is that people find themselves unwittingly pushed into higher-rate tax bands by cashing too much of their pension in a single tax year. For example, if a £250,000 pension is taken as a lump sum in the current 2015/16 tax
year, the tax bill would be over £70,000, assuming the individual has no other earnings. Staggeringly, this is despite a quarter of the withdrawal being tax-free.
The personal allowance - an amount of income you can have before you pay tax - can play a key role in keeping tax bills down. Most people in the UK get a personal allowance, which is currently £10,600 but this will be increased to £11,000 for the 2016-17 tax year and £11,200 for 2017-18.
Instead of taking a large pension withdrawal in a single tax year, you could spread it over two or more tax years, reducing your overall tax bill. If you have a partner or spouse, you could have a combined tax-free allowance of £21,200 for 2015/16 and £22,000 for 2016/17. Therefore, if you have the ability to do so, it’s prudent to ensure that your partner’s or spouse’s pension is funded as well as your own.
On top of increases to the personal allowance, the basic rate tax limit will be increased to £32,000 for 2016-17 and £32,400 for 2017-18. As a result, the higher rate threshold will be £43,000 in 2016-17 and £43,600 in 2017-18.
If you’re thinking of accessing your private pension in the near future, it could make sense to take part of the withdrawal before 5 April 2016 and the remaining amount in the new tax year. Better still, if you have a partner or spouse, you could reduce the tax bill further by splitting withdrawals across both pensions.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are dependent on individual circumstances.
The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The level of income from drawdown is not guaranteed. You may need to reduce your drawdown income in the future; in particular if the performance of your investments is lower than expected, or you live to a greater age than originally anticipated when you chose your initial income level.