Tax Planning For Taking Your Pension Savings
In September 2020, the government confirmed that from April 2028 the age at which you can access your pension savings will rise to 57 (from 55).
When you reach the qualifying age you can take 25% (or less, if you prefer) of your fund tax-free as a lump sum (tax-free cash) and with whatever is left:
- buy an annuity (lifetime pension); or
- draw sums regularly, all of which will be taxable as income.
When Are Golden Handshakes Taxable?
All payments made to an employee or director which reward them for past service are taxable as earnings and are fully liable to PAYE tax and employees’ and employers’ NI. This means you must treat them in the same way as salary. The £30,000 exemption doesn’t apply.
A golden handshake can be tax and NI free if, instead of being a cash payment, it’s in the form of an employer’s contribution to a registered pension scheme. HMRC has no objection to this under the current rules. The trouble is that the employee or director isn’t able to access the cash until they are 55 (57 from April 2028). But if they are, they can get 25% of the money tax-free almost immediately.
2021 NI Changes From 2021
From 1 January 2021 new NI rules apply to anyone you employ from the EU, EEA or Switzerland and to employees you send to work in those areas.
You can find detailed information in HMRC’s Employer Bulletin published in October 2020.