whether to cash in a small (<£10,000) pension pot

[RobertL]

Please willsomeone enlighten me? I have read this

http://www.hmrc.gov.uk/pensionschemes/small-pen.htm

but it does not seem to answer my question.

I am 59 years old. I have several pension pots which I accumulated while employed and when self employed. One of these (with Phoenix Life) has less than £10,000 in it; the others are bigger.

AIUI I can withdraw this small pot as a cash sum. But the information is scant on whether or not there is tax to pay on it.


* if I take the small pot as cash is it taxed and if so how?


thank you for any help you can offer.


Robert

 

[RobertL]

On Monday, July 14, 2014 11:34:44 AM UTC+1, RobertL wrote:

I found the answer: the first 25% is tax free and the rest is taxed as income.

http://www.pensionsadvisoryservice.org.uk/media/956343/spot008 trivialcommdetailed v1.7.pdf


Robert

 

[David Woolley]

I am 59 years old. I have several pension pots which I accumulated

+ while employed and when self employed. One of these (with Phoenix Life)
+ has less than £10,000 in it; the others are bigger.

The total of all the pots must be less than £30,000 for this rule to apply.

AIUI I can withdraw this small pot as a cash sum. But the
informationis scant on whether or not there is tax to pay on it.


* if I take the small pot as cash is it taxed and if so how?

http://www.hmrc.gov.uk/pensionschemes/small-pen.htm#5 says yes, although
you might be able to reclaim some, or all of it if you are currently
below the tax threshold. Most of it will be taxed at source, basically
as earned income, so you will have to actively reclaim any over-taxation.

 

[Roger Mills]

On Monday, July 14, 2014 11:34:44 AM UTC+1, RobertL wrote:

I found the answer: the first 25% is tax free and the rest is taxed as income.

http://www.pensionsadvisoryservice.org.uk/media/956343/spot008 trivialcommdetailed v1.7.pdf


Robert

Indeed. The remaining (say) £7,500 will be taxed as income. How much tax
you actually have to pay on that will depend on what other income you
have. If you have some unused allowance, you can offset some of it
against that. Otherwise, if you're a standard rate taxpayer, it will be
taxed at 20%. However, if the addition of this income pushes you over
the standard rate limit, some or all of it may be taxed at 40%.

As others have said, tax at 20% will be deducted by the fund manager,
and you will have to sort out any over or under payment with HMRC at the
end of the Tax Year.
--
Cheers,
Roger
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[RobertL]

On 14/07/14 11:34, RobertL wrote:
+ while employed and when self employed. One of these (with Phoenix Life)
+ has less than £10,000 in it; the others are bigger.

The total of all the pots must be less than £30,000 for this rule to apply.

Ah, you mean the "triviality" criteria. It was not clear to me that you had to meet that requirement as well. According to this:

http://www.pensionsadvisoryservice.org.uk/media/956343/spot008 trivialcommdetailed v1.7.pdf

there are two special rules that can be used even if the 'main triviality' criteria have not been met. But it is not completely clear what they mean because they say "even if the main rules above have not been met" but the text above is headed "core eligibility rules" not "main rules".

Robert

 

[David Woolley]

Ah, you mean the "triviality" criteria. It was not clear to me that you had to meet that requirement as well. According to this:

http://www.pensionsadvisoryservice.org.uk/media/956343/spot008 trivialcommdetailed v1.7.pdf

there are two special rules that can be used even if the 'main triviality' criteria have not been met. But it is not completely clear what theymean because they say "even if the main rules above have not been met" but the text above is headed "core eligibility rules" not "main rules".

Looks like I didn't read it carefully enough. The first bit in the HMRC
document is pot <= £10,000 OR SUM (pots) <= £30,000 (I read it asAND),
but with extra rules as to how many £10,000s you can take, and when.

It is possible that the tax manual wording for this is clearer.

 

[David Woolley]

there are two special rules that can be used even if the 'main triviality' criteria have not been met. But it is not completely clear what they mean because they say "even if the main rules above have not been met" but the text above is headed "core eligibility rules" not "main rules".

Actually, this may all become academic, as, as I understand it, the plan
is to remove the maximums from next April. You'll still get hit for the
tax in the year you take the money.

 

[RobertL]

Actually, this may all become academic, as, as I understand it, the plan
is to remove the maximums from next April. You'll still get hit for the
tax in the year you take the money.

That's a good point.

I imagine the government are expecting a lot of people to draw their whole fund out and accept the income tax hit. It will add big boost to the treasury.

Robert

 

[Mark]

That's a good point.

I imagine the government are expecting a lot of people to draw their whole fund out and accept the income tax hit. It will add big boost to the treasury.

Nail --> Head. IMHO it's all about short-term tax gains.

 

[Roger Mills]

Nail --> Head. IMHO it's all about short-term tax gains.

They may not get the tax before the election, though.
--
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Roger
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[Mark]

They may not get the tax before the election, though.

Won't stop them spending it to bribe the voters.

 

[RobertL]

They may not get the tax before the election, though.

i think they might well get a great deal of it almost at once on 6th April 2015. There might be a big pent up demand.

The willingness to take a tax hit is increased by the feeling that the government (of whatever colour) views pension savings as an easy place to raid and that they feel free to change the terms and conditions retrospectively.

Robert