{"id":116089,"date":"2025-09-05T10:05:07","date_gmt":"2025-09-05T10:05:07","guid":{"rendered":"https:\/\/www.newsbeep.com\/uk\/116089\/"},"modified":"2025-09-05T10:05:07","modified_gmt":"2025-09-05T10:05:07","slug":"sharp-rise-in-uk-pension-lump-sum-withdrawals-over-tax-concerns","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/uk\/116089\/","title":{"rendered":"Sharp rise in UK pension lump sum withdrawals over tax concerns"},"content":{"rendered":"

Stay informed with free updates<\/p>\n

Simply sign up to the UK tax myFT Digest — delivered directly to your inbox.<\/p>\n

The amount withdrawn from UK pensions in tax-free lump sums rose more than 60 per cent over the past financial year as savers prepare for possible changes to the tax rules on retirement funds.<\/p>\n

The rush comes as the government announced in last October\u2019s Budget that pensions would be subject to inheritance tax by April 2027, upending financial plans as retirement funds will no longer be a tax-efficient form of succession planning.\u00a0\u00a0<\/p>\n

With a potential hole of more than \u00a320bn in the public finances, the Treasury is looking closely at where extra revenue could be raised ahead of this year\u2019s Budget on November 26<\/a>.\u00a0\u00a0\u00a0<\/p>\n

There is speculation that the government will reduce the size of the tax-free lump sum that retirees can withdraw from their pension after the age of 55. The allowance is currently set at 25 per cent up to a cap of \u00a3268,275.<\/p>\n

A response to a freedom of information request submitted by wealth manager Evelyn Partners to the Financial Conduct Authority revealed that individuals withdrew \u00a318.1bn in the year to end of March, up from \u00a311.25bn the previous year. Most of the money taken out was in the second half of the year.\u00a0\u00a0<\/p>\n

\"Column<\/p>\n

The FCA\u2019s FOI response also revealed that more than 211,000 individuals withdrew a tax-free lump sum from their pension savings, up from around 163,500 the previous year.\u00a0<\/p>\n

\u201cThese are quite startling figures showing that the country\u2019s pension savers have been in an unprecedented rush to take their tax free lump sums,\u201d said Emma Sterland, chief financial planning officer at Evelyn Partners.\u00a0\u201cYou can\u2019t help feeling that much of this increase is a slightly panicked dive into pensions sparked by uncertainty over policy change.\u201d\u00a0<\/p>\n

Pensions minister Torsten Bell, who has been handed a key role<\/a> in preparing the Budget for chancellor Rachel Reeves, described the tax-free lump sum as \u201cvery generous, very regressive, and a strange incentive not to stagger your retirement income\u201d in a 2019 report when he was chief executive of the Resolution Foundation think-tank.<\/p>\n

Last year, the Institute for Fiscal Studies estimated that revenue lost to HMRC from tax-free lump sums, based on current saving behaviour, was about \u00a35.5bn a year.<\/p>\n

Tom Selby, director of public policy at investment site AJ Bell, said every Budget was preceded with \u201cfeverish speculation\u201d about possible tax changes causing \u201cuntold damage\u201d to confidence in retirement saving.<\/p>\n

Recommended<\/p>\n

\"Dom<\/a><\/p>\n

Ian Cook, chartered financial planner at Quilter Cheviot, said he had seen\u00a0\u201ca noticeable uptick\u201d in clients enquiring about taking tax-free lump sums, particularly since the news that inheritance tax would apply to pensions from 2027.<\/p>\n

UK inheritance tax is applied at a rate of 40 per cent to assets above \u00a3325,000, but this can rise to \u00a3500,000 where a property is passed on. Pensions will still pass to spouses and civil partners without incurring inheritance tax.<\/p>\n

Beneficiaries may also have to pay income tax on the pension proceeds after inheritance tax has been deducted, if the pensioner dies after they turn 75, which could give rise to an effective 67 per cent tax rate for additional-rate taxpayers.\u00a0<\/p>\n

The government estimates that its decision to bring pensions within inherited estates from 2027 will raise a total of \u00a31.5bn for the Treasury by 2030 and bring about 1.5 per cent more estates within the scope of death duties in 2027-28, on top of the current 4 per cent.<\/p>\n

The Treasury said it continued \u201cto incentivise pensions savings for their intended purpose \u2014 of funding retirement instead of them being openly used as a vehicle to transfer wealth.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Stay informed with free updates Simply sign up to the UK tax myFT Digest — delivered directly to…\n","protected":false},"author":2,"featured_media":116090,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[84,4176,4174,4175,56,54,55],"class_list":["post-116089","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-business","tag-finance","tag-personal-finance","tag-personalfinance","tag-uk","tag-united-kingdom","tag-unitedkingdom"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/116089","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=116089"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/116089\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/116090"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=116089"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=116089"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=116089"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}