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Taxation and the Law

The 2001 Taxes Act has a number of clauses that apply to retirement annuities. Under the Act, you can take out some of your pension plan and immediately receive it as a tax free lump sum. Only up to 25% is allowed for this purpose and the remainder is reserved for your annuity.

Tax applies to your annuity. Regular annuities are charged about 22% tax per payment, while high-income annuities that pay out over _29,000 annually fall under a higher tax bracket. Keep in mind that you may buy a purchased life annuity with your tax-free lump sum. Because a purchased life is considered as a partially capital-returning investment, it will not be as heavily taxed.

In any case, your annuity will be taxed. However you have options to ensure you get the best deal possible. Make sure to look into tax deferral and purchased life annuities to know what’s ideal for you.

// Joint Life Annuity Legislation
For those interested in this type of annuity, you need to examine section 656 of the Income and Corporation Taxes Act 1988. This can be found in full at: http://www.inlandrevenue.gov.uk/taxes_act_2001/vol02/ictapt14/ictapt14-101.htm.

// A Final Warning
The terms of your retirement annuity contract are final and cannot be cancelled after your purchase. Consult your independent financial advisor (IFA) before signing anything to make sure you’ve gone over all your options thoroughly.

Annuities are also considered a worthwhile form of investment by other people. Some types of annuities, like the Equity Index Annuity, can often return a good profit to speculators. The performance of such annuities is tied to the larger financial market, and as is the case in fixed annuities, subject to the effects of inflation as years go by.

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