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Next month's pension reforms...what are the tax implication of taking your full pension as a cash lump sum? Take a look at this table to find out:
Source & credit: based on an article in The Telegraph
This nifty table shows the effective tax rate of withdrawing a pension pot in full come April. A quick look would suggest that those most likely to be tempted to pull out a larger lump sum than the 25% tax free amount are:
- Those with little in the way of alternative income; and / or
- Those likely to be basic rate tax-payers when the taxable pension withdrawal is taken into account; and / or
- Those with smaller / medium-sized pension pots
Or out another way, where their effective rate of tax is lower than the 20% basic rate
There is possibly another group too...those who work out that if they staged the withdrawal over different tax years they can keep within the basic rate parameters...this does still rely on limited alternative income however.
And what does this all mean to a residential property investor and the rental market? More 'silver surfers' taking out smallish withdrawals and entering the rental market following April's pension reforms would be my guess...which funny enough is what I suggested in my 2015 predictions. 🙂