Potential Pension Withdrawal Tax Charge

October 8th, 2015

Thousands of people aged over 55 who take money from their pension funds face possible 70% tax charges, says the Mail. This is because if you take a tax-free cash sum of over £7,500 from a pension fund, and then add to your regular pension contributions, HMRC can claim that you are abusing the tax relief system and impose a 40% tax charge on the tax-free cash withdrawal plus 30% in other charges and penalties. The issue arises because many people are taking cash from old pension pots, typically worth less than £50,000, while remaining in their employer pension scheme to which they make contributions. It’s open to HMRC to say that if the tax-free cash was used to, say, pay off debt, that was what enabled someone to pay more into their pension – and this is defined as abuse.


This is yet another example of why you really do need to take care – and advice – on pensions to avoid the tax traps.