New pension freedoms could mean the unwary pay more tax

Posted 09/04/2015

The news that people aged over 55 are now allowed to access their pension funds has been greeted with joy by many. Freed from the shackles of having to purchase an annuity, it seems a no brainer to take it out. But rather than rushing to access the cash, it may be a good time to consider carefully whether this is actually the best option for you in either the short or long term.

Two key points to note are:

• Apart from 25% which is tax free, the rest would be subject to Income Tax at your marginal rate of tax. So if you are a higher rate tax payer, it would be taxed at 40%.

• If you keep it within your pension fund, you may ultimately be able to pass it free of Inheritance Tax to your children or grandchildren　　

So you should take advice to check what your immediate liability to Income Tax would be and also to consider what to do as part of your long-term Inheritance Tax strategy. If you need advice on this or any other aspect of your Inheritance Tax planning, Ashtons Legal lawyers are here to help.