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Tax trap hits 1 million over 55's

Almost one million people aged over-55 who took advantage of the right to withdraw from their pension funds between 2015 and 2018 may get an awful tax surprise as a result, according to HMRC.  


Tax relief is usually available on pension contributions up to £40,000 per year.


"However," said Afford Bond's Tax Direcor Chris Regnauld, "once an individual makes a flexible withdrawal, they forfeit that relief and cannot pay in more than £4,000 per year without triggering a Money Purchase Annual Allowance (MPAA).


The MPAA was designed by HMRC to prevent people avoiding tax on their earnings by putting salary into a pension scheme, taking advantage of the tax relief, and then, to all intents and purposes, withdrawing 25% tax-free. Pensions experts are critical of the implementation of MPAA - arguing that it is confusing, and that the goalposts keep moving.  A challenge which many people working hard to save for their retirement would agree with.  In 2017, for example, the threshold was reduced from £10,000 to £4,000, with the new limit applying retrospectively.  


"As always with this area of tax," said Chris Regnauld, "individual situations can be very complicated.  Afford Bond accountants have a team of experienced tax advisors who can help. If you would like an informal chat about the payment of tax on pension contributions, please contact me at Chris.Regnauld@affordbond.com."