8. Taxation of Pensions

Question 1

Pension - Tax Relief

Answer 1

Individual under age 75 entitled to tax relief contributions

Max is higher of:

• earnings capped at £40,000
• basic amount of £3,600

Pension tax relief is at taxpayer’s marginal rate

Question 2

Pensions at retirement

Answer 2

PCLS of 25% of accumulated fund available at retirement

Remaining fund produces income taxable at the pensioners marginal rate

Question 3

Accessing Pension Flexibly

Answer 3

Any amount exceeding PCLS is treated as income and taxed at marginal rate

Once pension is accessed flexibly, the future annual allowance (contributions) reduces to £4,000 (Money Purchase Annual Allowance - MPAA)

Question 4

Pensions on death

Answer 4

If individual dies before 75, can leave pension to anyone they want tax free

After 75, lump sums and pension income are taxed on recipient

Question 5

Lifetime Allowance

Answer 5

£1,030,000 for 2018/19 tax year rising with CPI

If pension fund exceeds this, lifetime allowance charge of:

• 25% (taken as income)
• 55% (taken as lump sum)