Many people know that we have some substantial changes in pension regulations coming in April 2015 but I wonder if many people understand that the regulations will allow many people to pay much less tax!!!
From April there will be an opportunity to withdraw all your pension pot in one go and spend it, or better still invest it – but there’s a massive draw back to that – you will pay tax on the money you withdraw! Now you will pay tax at your rate of income tax (20%, 40%, or 45% depending on whether you are a basic rate, higher rate or additional rate tax payer). But the pensions withdraw may be enough to push you into being one of those higher rates of tax payer even if normally you are just a basic rate tax payer – so be careful.
So my suggestion is that you withdraw any money from your pension gradually – and tactically – and if possible when your other income is low – ensuring that your overall tax rate stays at its lowest rate possible. And by matching those withdrawals to sensible investments into something like property you will ensure that the tax man gets as little as possible.
And of course – you can still withdraw an initial 25% of any pension plan completely tax free!
So with a little bit of planning and common sense you can minimise the amount of tax you pay overall – at the same time maximising your income – now that sounds like a good plan!
This article was written by Property Pensions Expert Gill Fielding.