Is there tax on pensions where there was a loss?

summereire

My father has two pensions funds, the current value of both of which is less than what he paid in to them.

I understand that there is a 25% lumpsum that is tax free in any case, however presumably the balance is also tax free if it is less than what he put in to the plan? After all, he is making nothing, just like there would be no capital gains tax on the sale of a property that is sold for less than it was purchased for.

Am I right?

Or maybe was there tax relief on the payments he made into the pension so that means there is tax now? In which case, is the balance just taxed at the rate of regular income of that amount?

I will of course be getting the accountant involved before he does anything but I'm just looking for some broad guidelines and personal experience.

Thank you!

Shane732

summereire wrote: »

My father has two pensions funds, the current value of both of which is less than what he paid in to them.

I understand that there is a 25% lumpsum that is tax free in any case, however presumably the balance is also tax free if it is less than what he put in to the plan? After all, he is making nothing, just like there would be no capital gains tax on the sale of a property that is sold for less than it was purchased for.

Am I right?

Or maybe was there tax relief on the payments he made into the pension so that means there is tax now? In which case, is the balance just taxed at the rate of regular income of that amount?

I will of course be getting the accountant involved before he does anything but I'm just looking for some broad guidelines and personal experience.

Thank you!

Unfortunately there is an exposure to Income Tax on amounts received from the fund in excess of the tax free lump sum entitlement.

Mr. Incognito

I understand that there is a 25% lumpsum that is tax free in any case, however presumably the balance is also tax free if it is less than what he put in to the plan?

No.

Pension income is Income. It is NOT capital.

All pension plans are deferred taxation. You do not pay tax on the amounts paid into the pension (although this has not changed with the new budgets), when you retire you get a tax free lump sum and you are taxed as you draw down.

If the pension pot has reduced. Tough. That's life, pick a better plan. No tax benefits at all.

summereire

Thanks guys, that's nice and clear :-)

So the income is paid at the same normal band/ income tax rate as regular income of the same amount would be?