Rishi Sunak is looking for more taxes in his fall budget. He is measuring our pension in a way that reminds me of robbery movies. If he can increase taxes without us realizing it, then this could be a perfect tax raid!
Here, let me take a look at why the hidden tax means that certain pensions are taxed at 55%, how this rule will change, and what you can do to protect your pensions.
Why do some pension savings have a tax rate of 55%?
current Lifetime allowance rules This means that the tax rate for the highest part of pensions worth more than £1,073,100 is 55%. It is actually the upper limit of the amount worth depositing in the pension.
It is a bit like a higher tax rate for income tax.Once you withdraw £1,073,100 from the pension tank, any remaining balance is taxed at 55%
Consider this example: Dennis has a pension worth 1,200,000 pounds. She violated the living allowance of £126,900 (£1,200,000 minus £1,073,100). If she pays the excess as a one-off payment, this £126,900 will incur a tax of 55%, which is £69,795 (55% of £126,900). The rules for revenue drawdown are slightly different, but still result in higher rates than normal.
These rules mean that your pension income when you enter retirement is much less than what you planned.
A pension tank worth 1,073,100 pounds may sound large, but it’s actually not as many as it seems. Such a large jar can only buy about 36,000 pounds per year in pensions. If you want to provide income for the surviving spouse, it will buy a smaller annuity.
In fact, many doctors’ pensions have far exceeded this amount. Any extra pension they want to save may be taxed at 55%.
And Rishi Sunak can reduce the lifetime allowance in his fall budget so that more pension cans are taxed at a tax rate of 55%.
What pension changes are expected in the fall budget?
According to experts, Rishi Sunak plans to reduce the lifetime allowance of pensions in the autumn budget. This means that more pensions will be taxed at 55%.
If he reduces the lifetime allowance to 800,000 or 900,000 pounds, then more pensioners will be affected by the lifetime allowance rule.
What can you do to protect your pension?
If you are about to retire and have a substantial pension, it is a good idea to obtain financial advice from a qualified independent financial advisor. They will be able to advise you on where to invest, whether to purchase an annuity or whether to use retirement funds for income extraction.
If the rules in the autumn budget change, more people will be at risk of violating the lifetime allowance. If this applies to you, then it may affect your pension plan.
You can apply to protect your lifetime allowance and reduce your taxes.Or you can save more tax Stocks and shares ISA Not a pension plan. Accepting financial advice is a good idea because the rules are complicated and everyone’s financial situation is different.
Please note that tax treatment depends on your personal circumstances and may change in the future. The content in this article is for reference only. It is not intended and does not constitute any form of tax advice. Readers are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.
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About the author
As a chartered accountant, mom, and personal finance geek, Alice’s writing topics include budgeting, savings, and investment.
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