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People who decide to take advantage of the new pensions flexibility should considering the tax credit consequences, the Low Incomes Tax Reform Group has advised.
Those who withdraw money from their retirement pot from the age of 55 should consider more than just the effect on their income tax liability, according to the charity’s technical director, Robin Williamson
People who decide to take advantage of the new pensions flexibility should considering the tax credit consequences, the Low Incomes Tax Reform Group has advised.
Those who withdraw money from their retirement pot from the age of 55 should consider more than just the effect on their income tax liability, according to the charity’s technical director, Robin Williamson
“If an individual withdraws money from his pensions saving, most of the amount becomes taxable income; it is also income for tax credits purposes,” he said. “Increasing income by taking money from the claimant’s pension savings could lead to the individual being overpaid tax credits which he will have to pay back.”
Williamson went on to warn that claimants could find themselves with fewer credits in the next year, and he stated the case for advanced planning to save in tax and credits charges.
“For example, if the claimant can afford to wait to take pension monies until the tax year after he retires, he might be liable to tax at a lower rate and suffer no adverse tax credits consequences if he is no longer eligible to claim them.”
Claimants are not obliged to tell the tax credit office about changes to income until a claim is renewed at the end of the tax year – but Williamson recommended letting the office know about money taken from a pension pot “as soon as possible… to reduce the amount of overpayment”.
