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Sunday 31 March 2024 07:51:24 GMT
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How is your Pension taxed when you use it? Ever wondered how your pension actually gets taxed when you start using it? 🤔 Let’s break it down in simple terms so you know exactly what to expect. 💡 The 25% Tax-Free Lump Sum In most cases, when you take money from your pension, you can get up to 25% of it completely tax-free. That’s often called your “tax-free cash.” For example, if your pension is worth £100,000, you could take £25,000 without paying a penny of tax. Sounds good, right? 💡 The Remaining 75% Here’s the important part: the other 75% is taxed as income. That means whenever you withdraw money, it’s added to your taxable income for that year—just like your salary or wages. So, if you’re still working or have other income sources, bigger withdrawals could push you into a higher tax band. But if you’re careful, you can manage your withdrawals to stay in a lower band and reduce how much tax you pay. This is why timing and planning are so important. 💡 Why It’s Like Your Current Pay Think of your pension as just another payslip. The more you take in a year, the more tax you pay. The less you take, the easier it is to stay tax-efficient. 💡 Always Take Advice Tax is incredibly personal. Everyone’s situation is different—married, single, still working, other investments… the list goes on. That’s why it’s always worth speaking to a financial advisor before making big pension decisions. Make your money work smarter, not harder 💪. #F#FinancialEducationP#PensionsM#MoneyTipsR#RetirementPlanningSmartMoney
How is your Pension taxed when you use it? Ever wondered how your pension actually gets taxed when you start using it? 🤔 Let’s break it down in simple terms so you know exactly what to expect. 💡 The 25% Tax-Free Lump Sum In most cases, when you take money from your pension, you can get up to 25% of it completely tax-free. That’s often called your “tax-free cash.” For example, if your pension is worth £100,000, you could take £25,000 without paying a penny of tax. Sounds good, right? 💡 The Remaining 75% Here’s the important part: the other 75% is taxed as income. That means whenever you withdraw money, it’s added to your taxable income for that year—just like your salary or wages. So, if you’re still working or have other income sources, bigger withdrawals could push you into a higher tax band. But if you’re careful, you can manage your withdrawals to stay in a lower band and reduce how much tax you pay. This is why timing and planning are so important. 💡 Why It’s Like Your Current Pay Think of your pension as just another payslip. The more you take in a year, the more tax you pay. The less you take, the easier it is to stay tax-efficient. 💡 Always Take Advice Tax is incredibly personal. Everyone’s situation is different—married, single, still working, other investments… the list goes on. That’s why it’s always worth speaking to a financial advisor before making big pension decisions. Make your money work smarter, not harder 💪. #F#FinancialEducationP#PensionsM#MoneyTipsR#RetirementPlanningSmartMoney

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