tax on withdrawal under new rules

striker44 · 2 April 2015 at 4:16PM

Hello,

I would be most grateful for some information. I am to make a withdrawal from my drawdown fund this month. Because the PAYE system assumes the withdrawal will be a monthly event, I will have to request a refund from HMRC for the overpaid tax.

I have been ringing them for the last week to see which form is required to complete as it seems to me Form 53 does not cover what is required.

Also, when I reinvest the tax refund back into my drawdown account, will I receive 40% relief? Many thanks in anticipation of anyone's help.

jamesd · 2 April 2015 at 5:05PM

You can use the forms if you have withdrawn all of the money from the pension pot. Use Reclaim Form P50 if you have no other pension/PAYE income or Reclaim Form P53.

If you are not taking out all of the money in the pension pot you cannot use those forms to reclaim the tax within the year. HMRC will only let you do that once the tax year has ended. There is an alternative of starting out with a small payment then getting HMRC to issue tax codes to your various PAYE income sources based on your anticipated income for the year. If the pension provider can split lump sum reporting from regular reporting they can then use the tax code from this to charge a correct amount of tax on the lump sum.

If you have enough higher rate income you can get higher rate tax relief on it. You can tell HMRC the amount of any planned pension contributions during the year and they will use that when working out what tax codes to use.

Remember that unless the pension pot is using Capped Drawdown your annual pension contribution allowance will be reduced to £10k a year, or increased from 0 to £10,000 from 6 April if you are using Flexible Drawdown, if you take out more than the initial 25% tax free lump sum. With Capped drawdown you can take out up to the GAD income limit each year without triggering the reduction. This doesn't happen if you do it this tax year.

clivep · 2 April 2015 at 10:33PM

jamesd wrote: »

You can use the forms if you have withdrawn all of the money from the pension pot. Use Reclaim Form P50 if you have no other pension/PAYE income or Reclaim Form P53.

Instructions for P50 say not to use it for pension lump sum payments but to use P53. I used P53s for my wife's & my small pot payments this year and have received both tax refunds... I have no other income but my wife has an annuity.

jamesd wrote: »

If you are not taking out all of the money in the pension pot you cannot use those forms to reclaim the tax within the year. HMRC will only let you do that once the tax year has ended.

I was thinking the P53 would be used to reclaim the tax on an UFPLS but, as you say, this states that it's for small pots. Pension providers are certainly saying that the tax can be reclaimed rather than waiting until year end. I would imagine HMRC will issue a new form or simply re-title the P53 to be used for an UFPLS.

jamesd · 3 April 2015 at 2:57AM

HMRC's instructions for pension freedom lump sums say to use P50 if there's no other pension/PAYE income other than the state pension. People are also told to use P50 in that case here.

Small pots rules go away on 6 April 2015 so P53 will be for pots where the whole pot is taken and there's some other PAYE/pension income beyond the state pension.

The HMRC pages will probably all be updated at some point.

clivep · 3 April 2015 at 10:36AM

As you say, with the disappearance of the small pot rules, HMRC will need to update their instructions.

It says to use the P50 when "you've retired and only get the state pension". My wife and I have both retired but neither of us have reached state pension age. Presumably the P50 usage should actually read "you've retired and have no source of taxable income other than any state pension you may be receiving".

I have no taxable income but my wife has £1,800/year from an annuity. The plan is to take a single UFPLS from each of our pensions each year to utilise our tax allowances. Consequently I plan to take £14,133
from my pot and £12,000 from my wife's pot later this month. The month 1 tax calc will mean large tax deductions initially.

It appears that I may be able to use the P50 to claim back the tax on my UFPLS.

The P53 would need to be used for my wife's refund but you have to send a P45 with this. I imagine a UFPLS would not normally come with a P45. I wonder if you can tell the pension provider that you will not be taking any further payments in the year and get them to supply a P45?

jamesd · 3 April 2015 at 12:37PM

You'd get the P45 when you take out all of the money from the pension pot. That's the only case where the P50 or P53 can be used.

Since you're planning on doing this with regular income each year I suggest that you set up monthly payments so that the pension provider will get a tax code from HMRC that will automatically correct the first overcharge in the later monthly payments.

If you don't want to do that, the next easiest way may be to transfer the amount you plan to take to another pension then take tall of the money out of that other pension.

clivep · 3 April 2015 at 2:26PM

Looking at the HMRC website makes it clear that you can't get a P45 with a UFPLS unless the whole pot has been extinguished.

I'm not planning on crystallizing either pot/entering drawdown. I just want to take one UFPLS a year from each of our pots. Making multiple UFPLS a year would incur excessive charges.

Pension providers are saying that the tax charged on a UFPLS can be reclaimed from HMRC without waiting until the tax year end.

e.g. From HL:
"This extra tax will need to be claimed back, either by filling out an HMRC repayment form - a P50 form if your only other source of income is the state pension, or a P53 if you have other sources of income. Otherwise pensioners can wait until the end of the year, when HMRC will refund any overpayment".

Just to reiterate, this is refering to the first one-off withdrawal in the tax year, NOT taking out all of the money from the pension pot.

e.g. 2 From Aegon:
"Recipients can contact HMRC and complete a repayment claim form to ensure the overpaid tax is refunded" but they don't say what form.

e.g. 3 from Hymans Robertson:
UFPLS of £14,133 has £3,710 tax deducted
“The tax deducted will be £3,710 – so he only receives £10,423 of his £14,133 withdrawal. He can claim a refund or wait until the year when HMRC will process the refund automatically.” They also don't say what form to use for the refund.

However, despite many companies saying the tax can be claimed straight away, I haven't been able to find anything on the HMRC website that specifically says the tax on a UFPLS can be reclaimed before doing an end of year return.

SnowMan · 3 April 2015 at 4:46PM

HMRC have changed the procedures and forms see their Pensions Newsletter 68. This answers some of the questions above, for example the in year reclaim where all the fund hasn't been extinguished where a P55 reclaim can be used.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/420650/Newsletter_68.pdf

The forms are now P50Z, P53Z and P55.

The P50 and P53 mentioned above are now redundant for these purposes

P50Z
individuals members should only use the P50Z form if they’ve taken a pension flexibility payment that uses up their pension pot and they have no other income

P53Z
individuals should only use the P53Z form if they’ve taken a pension flexibility payment that uses up their pension pot and they have other taxable income in this tax year

P55
individuals should only use the P55 form if they’ve taken a pension flexibility payment that does not use up all of that fund they have only taken one payment and do not intend to take a further payment from the same pension scheme this tax year and the pension body is unable to make any tax refund

clivep · 3 April 2015 at 9:25PM

Excellent! Thanks for that.

It's the P55 for my wife's and my UFPLS then.

I thought HMRC must have had something planned but I wasn't getting any suitable search results with Google.

I see the newsletter has only just been released. You'd have thought with all the other advance info about the UFPLS option that this information would have come out sooner.

I'll make a quick new thread to highlight the P55.

mgdavid · 3 April 2015 at 10:53PM

can the P55 be used to reclaim in the case of a once-per-year flexi-drawdown payment, or is it only for UFPLS?

jamesd · 4 April 2015 at 7:41AM

I haven't read it yet but the HMRC document that Snowman mentioned is more recent than those I was using and seems to replace them, so please go with what it suggest rather than what I've written here so far.

tax on withdrawal under new rules

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