This annoys a lot of people, and we, as the messenger, often get the blame. Taking a one-off, taxable withdrawal from your pension, having used up all of your tax-free cash is not a great idea, unless you’re a non-taxpayer using up your tax allowance. If you’re a basic rate taxpayer, it’s usually cheaper to borrow it over 5 years. But whatever your tax rate, the pension provider has to assume that your one-off payment is the first of a series, and tax you at emergency rates. It’s up to you to then claim back any overpayment, a pain for both you and, you’d think, HMRC. That’s been the system, however, since pension freedoms were introduced several years ago, and it doesn’t seem they’re inclined to change it. The cynical may say that it artificially boots the tax-take in the short-term, making the books look rather more balanced than they actually are. I couldn’t possibly comment.
“HMRC scraps plans to tax pensions after death”
A couple of other Statement Highlights (in my world, anyway). A welcome ‘nothing happened’ on the treatment of pensions on death. They were never going to be liable to IHT (too complicated with trusts and trust law) but there was talk of making them income-taxable on the recipients at whatever age you die.
