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tax implications of withdrawing from a pension scheme early

Hello all.

Withdrawal of cash/shares from a pension scheme before retirement age - tax penalties. Any way to relieve the tax charge?

Before I get the usual lectures about the above being completely mad, I already know, and furtunately did not advise the person I am speaking to, to do this. I also know that pension advice needs to be done by an IFA rather than an accountant.

I do however want to update my knowledge of the tax rules on the above, and, rather annoyingly, my tax guide (Bloomsbury) doesn't have any details on this specific part of the taxation of pensions. I've tried searching the HMRC website, which again, predictably was useless. What I have managed to figure out is that there is a big income tax penalty (something like 55%) although logically, I would have thought this should be subject to capital gains tax. I can't find the rules on calculating this however, and just want to make sure I know what I'm talking about from the tax standpoint on this, as it is something I've never seen before, so if anyone could explain, or point me to the relevant HMRC guidance, it would be much much appreciated.

Thank you in advance.

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Unauthorised payments

I assume you're referring to a registered pension scheme.  Pretty much any payment, other than one providing permissible benefits, is an unauthorised payment and will be liable to an unauthorised payments charge.  The scheme will also be liable to a scheme sanction charge and there may also be an unauthorised payments surcharge.  You need to read RPSM04104000 onwards, you're guaranteed to turn a shade of grey.

Is it not possible for the pension scheme to make a loan to the sponsoring employer, who can, in turn make a loan to the employee?

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22nd Feb 2012 11:31

Hi Steve. Thanks for your help, that is exactly what I was looking for and I'm having a read now.

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