18th August 2019 - Tax Week 20
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The changes made to the way pensions could be accessed from 2015 allowed people over 55 years of age to have access to pension pots in the same manner as a savings account. This meant there was no longer a requirement to purchase an annuity with 75 percent of the funds accrued. Large pecentages of people have taken this option with billions withdrawn.
We have provided this tool to allow you to test what the tax implication would be of making a withdrawal from a pension fund. The 25 percent tax-free amount still exists but after this any withdrawals are taxed in a cumulative manner and the pension provider should use a tax code to ensure the correct amount is deducted.
By entering a few details, including your other sources of income during the tax year selected, you can get a summary of what the actual tax should be on the funds extracted and what the pension provider may tax you at source.
If you are taking money from your pension out in small chunks, 25 percent of each withdrawal is tax-free. The remainder is added to your overall income as NIC exempt income for tax calculation purposes. It is then taxed at your marginal rate.
*We estimate the pension provider's tax deduction using a zero tax-free allowance and in a month-one cumulative manner. Sources indicate that past overpayments of tax on pension withdrawals has been due to this and you can read more about that here and here.