Budget 2014- £1,500 loophole windfall for over-60s

Tax Comments Off on Budget 2014- £1,500 loophole windfall for over-60s

Millions of people over 60 could get a £1,500 windfall from the Treasury because of an extraordinary loophole in the new pension laws.

Changes in the recent Budget, allow pensioners to cash in small pension pots worth up to £10,000.

Pensions experts have said that those able to access £8,000 cash could exploit the loophole to make a £1,500 profit this year.

Those with less cash can also take advantage, although they will make a smaller profit.

The new rules state that each person can cash in a pension pot worth up to £10,000 three times over. In the past, the limit was £2,000, making the potential profit very small.

A quarter of the money from the pot is tax-free with the rest taxed at the basic rate, if you are a basic rate taxpayer. The loophole works when you set up a pension, then cash it in at once.

You can set up a pension pot of £10,000, you pay in £8,000, the Treasury tops it up with another £2,000, which is the tax relief on it. You take it out straight away and you get back after tax a total of £8,500. If you do this three times you could receive £1500 tax free.

In theory, higher-rate taxpayers can make twice as much money because they qualify for double the level of tax relief. Participants must be aged 60 to 75 and in work.