HMRC warns that 'cooling off period' policies don't apply to returning withdrawn lump sums, leaving people liable for tax.
Ahead of Rachel Reeves’ Autumn Budget there was a lot of speculation on what taxes, benefits and topics might be on the agenda. While experts warned people against making hasty decisions before any official announcements, some people took what they believed would be protective measures.
Amid fears that the maximum amount you can withdraw from your pension fund as a lump sum without incurring tax would be cut down by over 50%, some people opted to withdraw as much as they could before the budget. Thinking they would be getting some tax savings if the threshold was cut or simply put the money back later if it wasn’t. However, HMRC has now warned savers that the “cooling off period” policy offered by pension providers that may have covered this reversal doesn’t actually apply. The policy only covers new products, while putting this lump sum back into the pension would technically be the return or addition to an existing product. It declared: “The payment of a tax-free lump sum cannot be undone and the member’s lump sum allowance will not be restored. The lump sum must be tested against their lump sum allowance at the time the lump sum was paid from their pension scheme. Unauthorised payment charges may apply if contributions to pension schemes are made out of tax-free lump sums and the conditions for the recycling rule are met.” This means people wanting to return the lump sum they protectively took out of their pension will be liable for tax on this payment. However, pension providers have pushed back on the ruling made earlier this month. Brits can take 25% out of their pension pots completely tax-free as a lump sum, with a maximum of £268,275. Ahead of the Budget there was major speculation that this would be cut as low as £100,000 but ultimately the cap was left entirely untouche
PENSIONS TAX BUDGET HMRC INVESTMENT
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