Pensions loophole allow savers to make risk-free £500 profit
New
pension rules in the latest rendition delivered by Chancellor George
Osborne is allowing people between the ages of 60 and 75 to withdraw
small pension pots as cash instead of taking them out as negligible
monthly payments. This means people are able to pour their funds into a
pension pot, get tax relief added on top and then proceed to take out
the money as a single cash lump sum. The crucial part of this deal is
that people can take a quarter of those funds tax free.
Now, since
the biggest retirement pot which can be withdrawn as cash is £10,000, a
regular rate taxpayer would need to put in £8,000, with the remaining
being tax relief, which is added automatically. When withdrawn as cash
and paying 20% in taxes on 75% of these funds, after removing the tax
charge, the saver will be making an instant profit of £500.
The
loophole was pointed out by Tom McPhail of Hargreaves Lansdown, but he
doesn’t believe people will be able to make use of it for very long. “It
is a loophole and I expect the Chancellor to close it without delay,"
he said.
