pension tax free lump sum

Ideas For That Pension Tax-Free Lump Sum



Posted on: 14th May 2024

Are you rapidly approaching your retirement goal and stuck for ideas of what to do with that tax-free cash? Maybe you already have some plan on what to put it towards. Upgrading to a new car, going on a well-deserved holiday, or paying off the rest of those mortgage payments to finally enjoy your home. Each has a potential incentive for that available money, but how do you go about taking that tax-free lump sum? Have you engaged with independent financial advisers Cheshire over your pension advice Manchester?

At Haven IFA, we give you as many avenues available as possible through our expert advice, especially on taking your pension tax free lump sum.

What is a Pension Tax Free Lump Sum?

The official term is ‘Pension Commencement Lump Sum’, which is typically 25% of your uncrystallized pension fund, meaning you haven’t taken any pension benefits from your pension pot previously.

Although the lifetime allowance was abolished in the 2023/24 tax year, there still exists a minimum amount of tax-free cash payable – 25% of the standard lifetime allowance before it was abolished (268,275). Although not officially confirmed, this amount is expected to be frozen.

It is possible to have more than this amount if you have lifetime allowance protection, or in certain cases, more than the standard 25% in way of protected tax-free cash. We recommend discussing this potential with your independent financial advisers Manchester to be sure.

What Options Are There?

First of all, you may choose to do nothing at all! You won’t lose it if you decide not to take it. Leaving it in place will allow your lump sum to increase if your pension grows.

The second option would be to take your retirement income in a series of small tax-free lump sums or a monthly income from your defined contribution pension pot, built entirely from your tax-free cash. A third option could be taking a combination of your tax-free cash and taxable income, providing a tax-efficient income. This option allows you to stipulate how much tax-free cash and taxable income you want to take in your allowance and minimize your tax efficiency.

You may want to take your tax-free lump sum as an Uncrystallised Fund Pension Lump Sum (UFPLS) where 25% of the withdrawal is tax-free, with you paying tax on the remaining 75% from the crystalized pension.

Unsure? Call on Experts

The good news about your retirement planning Cheshire and a tax-free lump sum is that you have options. To discover the best solutions for your financial life plans, it is wise to get professional, independent advice from the team at Haven IFA.

Contact our friendly agents today for pension advice Manchester.