Retirement will almost certainly bring about a lot of change for your routine. It will change your income and it will also change the amount of tax that you need to pay. If you want to find out how your pension is going to be taxed or if your savings are going to be interest-free then take a look below.
When you retire, you will still need to pay income tax after you have retired. You will need to do this on any income that is over the personal allowance. This will apply to all of your pension income and it also includes your State Pension as well. A lot of people think that their pension income is going to be tax-free, but this is not the case at all. Some income, which includes your State Pension, is going to be paid without tax being taken off. It’s important to know though that this doesn’t mean that no tax is going to be due. If you do have to pay any tax on your State Pension then this will be taken through any other pension you have. This may include your overseas pension.
Income Personal Tax
You are able to earn and receive up to £12,500 in the tax year before you have to pay any tax. This has not changed since last year. This is otherwise known as being your personal allowance. If you happen to earn more or if you receive less, then you are not a taxpayer. You may be able to claim much more than this if you are able to claim marriage allowance or if you can claim blind-person’s allowance.
How your Pension is Taxed
You are normally able to withdraw around 25% of your pension pot free of tax. The remaining pot is then used as an income or you can withdraw it if you want. Either way, you will be taxed on this. This ultimately means that any money you get that happens to be over your Personal Allowance is going to be taxed. There are so many pensions for expats, so don’t be afraid to look into them.
If you know that you have a defined pension, then this is otherwise known as being a final salary pension. You can take out 25% of your pension, free of tax but the rest will be paid as an income. This will be taxable. If you have a defined pension, then you should know that the rules changed in 2015 and now you can take as much out of your pension as you want. It should be noted that only the first 25% will be tax-free though. The amount of tax that you will pay will increase as your income goes over the threshold. If you want to find out more about this, then you may need to speak with a financial advisor. They can then talk to you about anything you might need to know.