From 6 April 2017, UK residents will be taxed on 100 per cent of pensions received from abroad, instead of the current 90 per cent.
The reform is intended, in conjunction with the new pension flexibility introduced last year, to avoid exploitation of the existing rules – though it is potentially unfair to those in receipt of foreign pensions, because they can incur extra costs when receiving the money.
Following the pension changes last year, the tax rules are. You can take 25% of your pension pot as a tax-free lump sum. Or you can take out smaller amounts, of which the first 25% will be tax free on each occasion.
But you will have to pay income tax on the amount you withdraw over and above the 25% tax-free allowance.
If that amount, added to the rest of your income, exceeds £42,386 (2015-16), for example, you will pay tax at 40% or more.
If the amount exceeds £100,000, you will begin to lose your personal allowance, resulting in an even higher tax charge.
The new rules make it easier to pass on a pension to your dependents. If you die before the age of 75, the pension pot can be passed on tax free.
If you die after 75, and your descendants want the whole pot as a lump sum, they will have to pay 45% tax, instead of 55% previously.
Those who draw down income from an inherited pot will, in any case, pay tax at their marginal rate.
If you have any questions please contact our Wills, Lasting Powers of Attorney, Trusts and Probate department either Angela Pelleschi or Emma Beckhurst on 01489 885788 or 01329 285341 or 02380 633225 or by email apelleschi or ebeckhurst