Pensions and Personal Tax
When the time comes to draw an income from your pensions, it is likely that you will be required to pay income tax.
However, when you take money from your pension, the first 25% is tax-free and you pay income tax on the remaining 75%.
In the U.K., the first £12,500 of any person’s income is their ‘Personal Allowance’ and is tax free. The 25% tax free amount from your pension does not use up your personal allowance, so the total tax you pay will depend on how much income you are earning.
Making sure you drawdown from your pensions as tax efficiently as possible is critical and planning carefully around your actual needs could help to reduce your tax bill. If you are heading towards retirement, it would be prudent to seek advice to make sure you are prepared and well placed to get exactly what you need from your pensions.
The process of pension planning can be further complicated if you are retiring abroad. Expats will need to understand the agreements in place between the UK and the country they are now residing in.