Taxation of Pensions Bill update
Nothing is finalised but what we are seeing is the pension rule book being torn up.
The new ‘flexi-access drawdown’ product now allows you to withdraw from your pension without constraints. You of course will have to pay income tax but we can try to minimise that.
It is however better to leave the pension alone until you need the income as just like an NISA it grows tax free.
If you die before age 75, any value left in your pension will not be subject to any taxes. If you are older than 75 the residual pot can be passed onto any beneficiary but will be subject to income tax at their marginal rate, assuming that they pay tax.
To compare against a NISA. On death, the pension is outside the estate, but the NISA does form part of the estate and is therefore subject to IHT at 40%. This now gives you the option of transferring from the NISA into the pension receiving income tax relief and IHT relief. As this seems too good to be true the chancellor may review this change.
There has also been a relaxation of the rules governing annuities. Providers now have more flexibility to design products.
On the December 3rd the Autumn Statement will hopefully provide more details. The key takeaway is that you can save income tax by topping up your pension and by drawing down wisely you can pass a legacy onto your beneficiaries.
Kind regards,
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