With inheritance tax on pension pots just months away, beware the risk of cashing in pensions quickly without assessing tax implications, warns Mike Ambery, retirement savings director at Standard Life
Tax is becoming an increasingly important part of how people think about their pensions, particularly as inheritance tax (IHT) changes loom from next April. For some, this prospect may lead to decisions about accessing their savings earlier than they otherwise would have.
However, it’s important to weigh it up carefully - taking money out sooner can mean bringing forward income tax liabilities, and in some cases paying more than expected. Fully withdrawing means you may also lose out on potential investment returns, depending on what you do with it next.
Top tax tips
1. Watch the £50,000 and £125,000 thresholds
Income above £50,270 moves into higher rate 40% tax, and above £125,140 into the 45% additional rate (although the banding works differently in Scotland). What often happens is that a single withdrawal can push people across both thresholds in one go, which significantly increases the amount of tax they pay.
