Those aged 60 and above could potentially make £1,500 by exploiting a loophole in the pensions rules introduced in the last Budget.
People aged 60-75 can pay into a pension, obtain tax relief on the money and then withdraw the money as a single cash lump sum as long as the pension account is worth no more than £10,000.
25% of the lump sum withdrawn is paid tax-free with the balance taxed at an individual’s marginal rate of income tax.
If the individual can justify, based on their earnings, a net contribution of £8,000 into a pension, £2,000 will be added in basic rate tax relief giving a total contribution and account value of £10,000.
The individual can withdraw the £10,000 immediately, £2,500 will be paid tax free the balance £7,500 is taxed. Assuming the individual is a basic rate tax payer the £7,500 will be taxed at 20% leaving them with £6,000 + £2,500 = £8,500 i.e. a gain of £500 on their original investment.
Individuals can withdraw up to three private pension accounts worth up to £10,000 as a lump sum meaning this could be repeated twice to give a total gain of £1,500.
We don’t expect people to be able to do this for long as it is a loophole that the government is likely to close shortly but it is a legitimate opportunity while it lasts.