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Thousands face hefty tax bill thanks to pension reforms


The Institute of Fiscal Studies (IFS) has claimed that hundreds of thousands of people will be faced with a huge tax bill if they decided to cash in their pensions when the new reforms are introduced.

The IFS has claimed that many people over the age of 55 face paying tens of thousands of pounds in income tax if they are unaware of the rules around withdrawing all their savings. Savers will only be able to withdraw 25% of their savings tax free, and will be liable for income tax on the remainder. If the sum a saver takes out - when added to annual income - exceeds £42,386, they will pay tax at the higher rate of 40%.

The Treasury is expecting to raise an extra £1 billion next year thanks to people taking their pensions out.

A survey commissioned by Sanlam Wealth Management suggests that 85% of over 55s are unaware they will face any tax bill when liberating their pensions. Many experts have called for the government to further advertise this fact, so people are not left in the dark and open to losing more money that the expected.

Paul Johnson, director of the IFS said:
"If you can keep your income below the higher rate threshold, you're going to end up paying less tax than if you take it in a big lump."
For more information on the pension reforms, please read out guide here

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