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bigduckontax, Accountant
Category: UK Tax
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My question relates to UK tax on withdrawals from an

Customer Question

My question relates to UK tax on withdrawals from an unregistered pension scheme. I have seen tax quoted as 'up to 55%' or even 60%. can you clarify the rules?
Submitted: 1 year ago.
Category: UK Tax
Expert:  bigduckontax replied 1 year ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

If you release your pension from any scheme before the age of 55 you can indeed be taxed at up to 60% on the sum liberated unless you are in very poor health. Over 55 pension release is possible. Of the sum liberated 25% is tax free, the balance taxed at your marginal rate of tax. Also, the firm which holds your pension pot will charge for early release and you could easily loose up to 40% thereof.

The Money Advice Service has a very useful guide on this matter. You can read about it here:

In general terms pension release is an expensive exercise. It is far better to wait until your pot can be converted into an annuity, although current annuity rates are far from attractive.

I do hope that I have given you some food for thought.

Expert:  bigduckontax replied 1 year ago.

Further investigation reveals more problems with unregistered pension schemes of which you should be aware. It comes from [edited]:

' [These schemes] are not liable for tax or National Insurance contributions as they are made

  • are not deductible in the employer's accounts until benefits start to be paid to the employee

Non-registered schemes may also be liable to income tax and capital gains tax at the rate applicable to trusts.

The benefits paid by such schemes are:

  • subject to income tax (there is no entitlement to a tax-free lump sum)
  • not subject to National Insurance contributions, if the benefits paid are consistent with general benefit rules for benefit schemes
  • subject to inheritance tax'

So the ability to have 25% of a lump sum tax free is not available, sorry.