The subject of what tax you will pay on your pension comes up quite frequently, so I decided to do this quick video post to clarify what the government expects you to pay.
You will pay income tax at your highest marginal rate on pension money that you drawdown. Your personal tax allowance will not be affected by your pension income though. Plus you can take part of the pension fund (currently 25%) as a tax free lump sum.
How much tax you pay depends on your total combined income from all sources (pensions, part time work, rental income etc) and the tax rate that applies to you.
It’s crucial to be aware that if you drawdown large amounts of your pension (or even all of it) because of new pension freedom rules which came in from APRIL 2015 you could accidentally push yourself into high rate or additional tax bands and suddenly face very large tax bills you were not expecting.
For further details speak with your Financial Advisor or Accountant if you have one. As ever you are welcome to call me and remember your first hour is 100% free.
To find out more about how tax will affect your retirement planning please do not hesitate to get in touch.
(Click to call either number above from a mobile).