Have you accessed any of your pension? The Finance Bill 2017 has just confirmed that those who have saved and are able to access their pension from the age of 55, will now face a tax-free allowance cut.
The allowance had been set at £10,000 but is dropping to less than half this at £4000 for the 2017/18 tax year.
In the Autumn Statement in 2016, Philip Hammond announced the 60% cut, introducing the idea that the £10,000 limit on new contributions to pensions or those who had already accessed any of their possible 25% tax free cash would be slashed by a massive 60% to just £4,000 per annum.
The Government U-turned on the proposition which had been confirmed in the 2017 Finance Bill, after the announcement of the snap general election. Other proposals had also been put on the back burner around the time of the election, including the proposed reduction of the tax free dividend allowance, also being cut by 60% for 2018/19.
Finance Bill 2
The ‘Finance Bill 2’ was announced at the end of last week, with several new policies to be introduced in the Autumn legislates.
AJ Bell senior analyst Tom Selby commented on the affect the new MPAA (money purchase annual allowance) would have on retirees.
“The reality, though, is the UK pension tax regime is a mess, bedevilled by complexity and confusing even to seasoned industry experts. Rather than continuing to tinker with a broken system, the government should carry out a root-and-branch review aimed at simplifying the rules and encouraging more people to save for retirement.”
IN Accountancy note that it is probable that there are individuals who have now already exceeded this amount in the first three months, with the earlier announcement that the rate would be more than double what it now will be. If you have exceeded the threshold you’ll end up being hit with a tax charge on the excess you’ve gone over, resulting in a charge of income tax.
The change was originally introduced to prevent individuals from ‘recycling’ their pension savings, by withdrawing their pension and then claiming tax relief on any new contributions. The limit applies to those who have begun to withdraw from their pensions but are still contributing. The new limit reduces the amount that can be put back into your pension once you have accessed it.
The new £4000 MPAA is to be introduced for 2017/18.
Thanks to In Accountancy for contributing this post