Take care \u2013 or pay twice as much tax<\/strong><\/p>\nCalculations by wealth firm AJ Bell show that the way savers access their pensions could more than double the amount of tax paid on income.<\/p>\n
In one example, a pensioner who wants to take out \u00a325,000 a year from their pot could pay either \u00a31,236 in tax \u2013 or nearly \u00a32,500 \u2013 depending on how they structure withdrawals.<\/p>\n
The key is something known as “crystallisation” \u2013 a clunky bit of jargon, but one that could save you thousands.<\/p>\n
Rather than taking the whole 25% tax-free lump sum at once, pensioners can instead crystallise their pension in chunks. This allows them to continue benefiting from tax-free allowances each time they draw income.<\/p>\n
What is crystallisation \u2013 and why does it matter?<\/strong><\/p>\nWhen you crystallise part of your pension, you unlock 25% of that portion as tax-free cash. The rest \u2013 75% \u2013 goes into drawdown or is taken as income, which is taxed.<\/p>\n
By spreading withdrawals over the years, you can keep tapping the 25% tax-free benefit again and again, rather than using it up all at once.<\/p>\n
Tom Selby of AJ Bell told the Times: \u201cDeferring your tax-free cash can reap dividends, because the longer you leave your pot invested, the more opportunity it will have to grow.\u201d<\/p>\n
Take a pension pot worth \u00a3100,000. Cash it in now, and you\u2019ll get a tax-free \u00a325,000. But if you leave it invested and crystallise it gradually \u2013 and the pot grows at 5% annually \u2013 your 25% tax-free share could rise to \u00a330,525 after five years.<\/p>\n
The Isa trick that could save thousands<\/strong><\/p>\nHelen Morrissey, of investment platform Hargreaves Lansdown, says savers should look beyond pensions to manage tax bills in retirement.<\/p>\n
\u201cIncome can be taken from your Isa tax-free, so you may choose to get your retirement income from a mix of your pension and Isa to keep that tax bill down.\u201d<\/p>\n
In one example, drawing \u00a316,750 from your pension (crystallised) and \u00a38,250 from your Isa means the entire \u00a325,000 could be tax-free \u2013 thanks to combining the pension\u2019s tax-free allowance and the personal income allowance.<\/p>\n
Gifting loopholes to avoid 40% tax<\/strong><\/p>\nThere are several exemptions that allow people to pass on wealth tax-free:<\/p>\n
\u00a33,000 can be given away each tax year \u2013 and if unused, you can carry forward the previous year\u2019s allowance for a \u00a36,000 gift.<\/p>\n
You can also give \u00a3250 to any number of people tax-free, as long as no other exemption is used for them.<\/p>\n
Wedding gifts: \u00a35,000 from parents, \u00a32,500 from grandparents, and \u00a31,000 from others are tax-free.<\/p>\n
Unlimited gifts to charities or political parties are exempt.<\/p>\n
Regular gifts from surplus income are also allowed \u2013 as long as they don\u2019t impact your standard of living.<\/p>\n
Drysdale added: \u201cIt\u2019s a good idea to keep clear records of your income and expenditure when using gifting exemptions to demonstrate that the necessary conditions have been met.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Savers are being hammered with massive tax bills, with some losing almost \u00a3100,000 at once, for withdrawing their…\n","protected":false},"author":2,"featured_media":212129,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3093],"tags":[54718,51,474,2074,3463,2096,2095,2499,619,16,15],"class_list":{"0":"post-212128","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-budget-2025","9":"tag-business","10":"tag-finance","11":"tag-pension","12":"tag-pension-2025","13":"tag-pension-latest","14":"tag-pension-news","15":"tag-personal-finance","16":"tag-rachel-reeves","17":"tag-uk","18":"tag-united-kingdom"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/114741939003171275","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/212128","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=212128"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/212128\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/212129"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=212128"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=212128"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=212128"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}