Take Tax Free Cash, Re-Invest and Get More Tax Relief.
December 2nd, 2009 Investments, News, Retirement PlanningAs some of you may know, the minimum pension age for drawing a private pension will rise from age 50 to age 55, from April 2010. For example, someone born on the 7th April 1960, could have taken pension benefits at age 50 in April next year but now they have to wait until they are 55 – in 2015.
However, anyone who will turn 50 before April next year or is already in this age range, still has a chance to take action before the changes take effect.
Realistically, it will be few people that can retire at age 50 or 55 but they can still take part of the private pension fund without retiring. This may be a useful way of providing a tax free lump sum now, or as a way of a company director extracting cash from the business.
Of course, taking the tax free cash early and reinvesting it can be very tax efficient. A basic rate taxpayer would get an extra £2.500 in tax relief on £10,000, and a higher rate taxpayer twice that.
HMRC is aware of these tax advantages and have certain rules on ‘recycling’ this tax-free cash. As long as you do not reinvest more than 1% of the current lifetime allowance in any one tax year, there shouldn’t be anything to worry about.
Of course, one could always recycle the income element should it be appropriate. We would recommend that you arrange for your Financial Planner to consider your income requirements by way of a ‘cashflow’ model before any action was taken.
