Tax treatment on Pension Lump sum
Discussion
Looking for some tax advice. Wondering if it is completely straightforward or if I need to really get specialist advice.
I have 2014 Fixed Protection on my pension. I am, as I understand it, able to take £375k tax free from my various pension pots.
I have taken some of that last year . I was going to start one of my DB pensions, as I am now retiring for health reasons (I am over 60 therefore no problem doing so). It has a large DB element and a small AVC element
The BP pension has offered me a lump sum that would (when combined with what I've taken from my SIPP) put me £50k over my £375k. Coincidentally, the £50k is about the entirety of my AVCs.
If I take their lump sum, how is the £50k treated? Is it just straight income? Or is there a punitive tax?
If there is no punitive tax, I'm currently thinking I will take the whole thing and pay the tax on the £50k (as my earnings this year have been trivial this year).
If there is a punitive tax, I'll take all the AVCs and cut my lump sum from the DB scheme.
Is my thinking sound? My health issue means I will last for a while but I probably won't make old bones.
I have 2014 Fixed Protection on my pension. I am, as I understand it, able to take £375k tax free from my various pension pots.
I have taken some of that last year . I was going to start one of my DB pensions, as I am now retiring for health reasons (I am over 60 therefore no problem doing so). It has a large DB element and a small AVC element
The BP pension has offered me a lump sum that would (when combined with what I've taken from my SIPP) put me £50k over my £375k. Coincidentally, the £50k is about the entirety of my AVCs.
If I take their lump sum, how is the £50k treated? Is it just straight income? Or is there a punitive tax?
If there is no punitive tax, I'm currently thinking I will take the whole thing and pay the tax on the £50k (as my earnings this year have been trivial this year).
If there is a punitive tax, I'll take all the AVCs and cut my lump sum from the DB scheme.
Is my thinking sound? My health issue means I will last for a while but I probably won't make old bones.
AstonZagato said:
Looking for some tax advice. Wondering if it is completely straightforward or if I need to really get specialist advice.
I have 2014 Fixed Protection on my pension. I am, as I understand it, able to take £375k tax free from my various pension pots.
I have taken some of that last year . I was going to start one of my DB pensions, as I am now retiring for health reasons (I am over 60 therefore no problem doing so). It has a large DB element and a small AVC element
The BP pension has offered me a lump sum that would (when combined with what I've taken from my SIPP) put me £50k over my £375k. Coincidentally, the £50k is about the entirety of my AVCs.
If I take their lump sum, how is the £50k treated? Is it just straight income? Or is there a punitive tax?
If there is no punitive tax, I'm currently thinking I will take the whole thing and pay the tax on the £50k (as my earnings this year have been trivial this year).
If there is a punitive tax, I'll take all the AVCs and cut my lump sum from the DB scheme.
Is my thinking sound? My health issue means I will last for a while but I probably won't make old bones.
You can only take a total of £375k tax-free. Now the Lifetime Allowance has been (largely) removed, there won’t be the LTA charge on any “cash” in excess of that - so any excess “cash” should just be taxed as income. The punitive LTA charge on excess funds has been removed.I have 2014 Fixed Protection on my pension. I am, as I understand it, able to take £375k tax free from my various pension pots.
I have taken some of that last year . I was going to start one of my DB pensions, as I am now retiring for health reasons (I am over 60 therefore no problem doing so). It has a large DB element and a small AVC element
The BP pension has offered me a lump sum that would (when combined with what I've taken from my SIPP) put me £50k over my £375k. Coincidentally, the £50k is about the entirety of my AVCs.
If I take their lump sum, how is the £50k treated? Is it just straight income? Or is there a punitive tax?
If there is no punitive tax, I'm currently thinking I will take the whole thing and pay the tax on the £50k (as my earnings this year have been trivial this year).
If there is a punitive tax, I'll take all the AVCs and cut my lump sum from the DB scheme.
Is my thinking sound? My health issue means I will last for a while but I probably won't make old bones.
Even without the LTA charge, it might be worth considering taking a lower cash sum from your BP DB pension. Depending on the commutation factor offered (i.e. the rate at which pension is converted to cash), it may not be worth commuting more pension and then ending up with a (income tax) tax bill on your AVC pot.
Obviously you know your health better than we do, but people do tend to underestimate their life expectancy. Your numbers suggest you are wealthy so your life expectancy could quite feasibly be a further 30 years from now.
If / when Labour win the GE there is still potential for them to reverse the abolition of the LTA and / or play with the 25% TFC.
Whilst I doubt they would be able to do something quickly or even retroactively there still remains potential.
As such I am exploring options to take the total amount now ( also £375k as have FP 2014 ) and then reinvesting “ somewhere “ the money. The Pension in question would then be deemed to be crystallised.
As such I would continue to take my drawdown from the pot left which would “ only “ then attract income tax as others have said.
Whilst I doubt they would be able to do something quickly or even retroactively there still remains potential.
As such I am exploring options to take the total amount now ( also £375k as have FP 2014 ) and then reinvesting “ somewhere “ the money. The Pension in question would then be deemed to be crystallised.
As such I would continue to take my drawdown from the pot left which would “ only “ then attract income tax as others have said.
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