Tax on Annuities
When it comes to claiming any kind of income in the UK we are all subjected to tax and unfortunately in most situations this is exactly the same when it comes to claiming an annuity income. Despite the fact that annuities are designed specifically for retirement, they are still subjected to income tax (with a few exceptions) in the same way that our earned incomes would be, although there are elements of annuity incomes which are currently exempted.
How does Tax work with my annuities?
In general when you take out an annuity you are initially entitled to take a 25% lump sum tax free. This can be used as an investment or simply to kick start your retirement. After this the remaining 75% must be used to provide a stable income for the remainder of your life. That income is similar to a wage and will be taxed accordingly. At the end of each year you may be required to complete a PAYE form to claim back any tax which you may have overpaid during the year.
Are there annuities which are exempted from Tax?
Not all annuities have to pay tax and one common example of an annuity which doesn’t is the Immediate Needs Annuity. This annuity is specifically designed for people who may need immediate care and attention as they are unable to look after themselves or perform necessary daily tasks. In the event of this, the person may be eligible to put their annuity income towards paying for a care home or a carer. Any income which is paid directly to a care home as an annuity income is able to be paid tax free.