Brits should be aware of changes to pension inheritance tax (Image: Getty)
Brits looking to retire could face an £87million tax bill after cashing in pension pots experts have warned. A minimum of £87.2million was paid in tax on the largest full pension withdrawals in just six months which is up over 20% year-on-year, new analysis has found. It also revealed that 350 people paid at least £98,700 each after cashing in pots over £250,000.
Upcoming changes to pension inheritance tax rules could influence how and when some people choose to access their pension savings, warns Standard Life. By analysing FCA data, it has shared its top tips to help avoid costly tax traps. Brits fully cashing in pension pots worth £100,000 or more handed over at least £87.2million in tax in just six months, according to the analysis.
The figure, covering October 2024 to March 2025, is more than 20% higher than the previous year, highlighting how taking savings in one go can trigger unexpectedly high tax bills, with many retirees paying far more than they might have anticipated.
In total, 392 people fully encashed pension pots worth at least £250,000, each triggering a minimum estimated income tax bill of £98,700.
A further 1,772 people fully cashed in pots worth between £100,000 and £249,000, each paying at least £27,400 in tax.
These figures are based on minimum estimates and focus on people who fully withdrew pension pots of £100,000 or more.
They don’t include tax paid on full withdrawals from smaller pots or regular withdrawals.
The final tax bill for those who choose to cash in their pension in one go will also depend on someone’s wider income, which means many people could end up paying more than these figures suggest.
Experts have revealed how to be prepared for being taxes in retirement (Image: Getty)
Expert’s verdict
Mike Ambery, Retirement Savings Director at Standard Life said: “Life doesn’t always follow a set path, and when people reach the point of accessing their pension, there are often a lot of competing priorities.
“For some, taking a larger amount upfront will feel like the simplest option, but it can come with a sting in its tail in the form of a higher tax bill than many expect.
“What catches people out is how quickly a single withdrawal can push them into higher tax bands.
“In some cases, a decision that feels straightforward in the moment can mean a significant portion of the money they’ve worked hard to build up ends up going to tax.
“Taking a bit of time to understand how withdrawals are taxed, and spreading them more carefully, can make a real difference over time.
“Even relatively small changes to when and how you take money can help more of your savings go towards supporting your life later on.”