As I’m sure you are aware in his 2014 Budget, Chancellor George Osborne announced a set of radical pension reforms. A number are already in play, however others are due to come into force in April 2015.
So what are the important changes from April 2015, and how might they affect you?
Freedom to draw down cash
From April 2015, if you are aged 55 or over and have a defined contribution pension, you can either take 25% of your pension tax-free in one lump sum or have 25% of any withdrawals made tax free.
For further information please read AXA’s Lowdown on Drawdown (http://www.reevesifa.com/uploads/Clientdrawdown-infographic-INCAW1007.pdf)
Flexible access to pensions from age 55
From April 2015 pension investors aged at least 55 will have flexibility on how they draw an income from their pension, over and above drawing down the tax-free lump sums. They can:
- Take the whole fund as cash in one go
- Take smaller lump sums, as and when they like
- Take a regular income via income drawdown – where they draw directly from the pension fund, which remains invested
- Take a regular income via an annuity – where they receive a guaranteed income for life but lose their pension capital
Please note any withdrawals over and above the tax-free amount will be taxed as income at your marginal rate.
55% pension ‘death tax’ to be abolished
Currently, it is only possible to pass a pension on as a tax-free lump sum if you die before age 75 and you have not taken any tax-free cash or income. Otherwise, any lump sum paid from the fund is subject to a 55% tax charge.
From April 2015 this tax charge will be abolished. The tax treatment of any pension you pass on will depend on your age when you die.
If you die before age 75, your beneficiaries can take the whole pension fund as a lump sum or draw an income from it tax free, when using income drawdown. Dependants can also choose to buy an annuity, in which case the income will be taxed.
If you die after age 75, your beneficiaries have three options:
- Take the whole fund as cash in one go: the pension fund will be subject to 45% tax (current proposal).
- Take a regular income through income drawdown or an annuity: the income will be subject to income tax at your beneficiary’s marginal rate.
- Take periodical lump sums through income drawdown: the lump sum payments will be treated as income, so subject to income tax at your beneficiary’s marginal rate
If you would like to discuss your options then please contact us NOW on 0191 281 9862 or e-mail firstname.lastname@example.org to arrange a FREE initial appointment
Additionally please have a look at our core services document or visit our website www.reevesifa.com for further information