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  • FIRST POST
    • Carolinemjs
    • By Carolinemjs 16th May 17, 11:12 PM
    • 83Posts
    • 39Thanks
    Carolinemjs
    Reclaiming tax on SIPP
    • #1
    • 16th May 17, 11:12 PM
    Reclaiming tax on SIPP 16th May 17 at 11:12 PM
    I invested £2880 in a sipp with Hargreaves Lansdown and have received the £720 tax relief. I applied to withdraw £3600 but they have made a deduction which I presume is tax. I don't pay tax due to low earnings so when and how to I reclaim this?
    Please excuse my explanation of this, it's all new ground for me.
Page 1
    • xylophone
    • By xylophone 16th May 17, 11:53 PM
    • 21,660 Posts
    • 12,459 Thanks
    xylophone
    • #2
    • 16th May 17, 11:53 PM
    • #2
    • 16th May 17, 11:53 PM
    If you applied to draw the £3600, you would receive the 25% tax free with balance taxed as income even though you do not pay tax - you would reclaim tax overpaid by contacting HMRC.

    http://adviser.royallondon.com/technical-central/pensions/benefit-options/emergency-tax-and-lump-sum-withdrawals/

    https://www.gov.uk/government/publications/income-tax-repayment-claim-when-small-pension-taken-as-a-lump-sum-p53

    Have you closed the SIPP so that HL have also charged you a closure fee?

    How much have you received?
    • dunstonh
    • By dunstonh 17th May 17, 12:41 AM
    • 88,185 Posts
    • 53,395 Thanks
    dunstonh
    • #3
    • 17th May 17, 12:41 AM
    • #3
    • 17th May 17, 12:41 AM
    I don't pay tax due to low earnings so when and how to I reclaim this?
    most providers tell you on the letter they send out. I am sure HL would.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • Carolinemjs
    • By Carolinemjs 17th May 17, 6:25 AM
    • 83 Posts
    • 39 Thanks
    Carolinemjs
    • #4
    • 17th May 17, 6:25 AM
    • #4
    • 17th May 17, 6:25 AM
    If you applied to draw the £3600, you would receive the 25% tax free with balance taxed as income even though you do not pay tax - you would reclaim tax overpaid by contacting HMRC.

    http://adviser.royallondon.com/technical-central/pensions/benefit-options/emergency-tax-and-lump-sum-withdrawals/

    https://www.gov.uk/government/publications/income-tax-repayment-claim-when-small-pension-taken-as-a-lump-sum-p53

    Have you closed the SIPP so that HL have also charged you a closure fee?

    How much have you received?
    Originally posted by xylophone
    Thank you. I applied to draw £3600 but I haven't closed the SIPP as I had invested another £2880 - so there is no closure fee. I now realise I didn't need to do it this way but what's done is done.
    I received £3252.
    • Carolinemjs
    • By Carolinemjs 17th May 17, 6:27 AM
    • 83 Posts
    • 39 Thanks
    Carolinemjs
    • #5
    • 17th May 17, 6:27 AM
    • #5
    • 17th May 17, 6:27 AM
    most providers tell you on the letter they send out. I am sure HL would.
    Originally posted by dunstonh
    Thank you. The amount only reached my account last night so I guess I was a bit quick off the mark. I had looked at their site but couldn't see anything helpful. No doubt a letter will arrive
    • Dazed and confused
    • By Dazed and confused 17th May 17, 6:56 AM
    • 1,394 Posts
    • 571 Thanks
    Dazed and confused
    • #6
    • 17th May 17, 6:56 AM
    • #6
    • 17th May 17, 6:56 AM
    Just because your earnings are low enough not to pay tax on them doesn't mean you won't have tax to pay on your total income, including the taxable element of the sipp payment

    The tax position all depends on how much your income is including the sipp payment.
    • bowlhead99
    • By bowlhead99 17th May 17, 7:00 AM
    • 6,424 Posts
    • 11,374 Thanks
    bowlhead99
    • #7
    • 17th May 17, 7:00 AM
    • #7
    • 17th May 17, 7:00 AM
    Basically you have received a lump of income from HL and they don't have a proper tax code for you because it was a one-off. Of the £3600, £2700 was taxable income. When they look at a standard annual allowance they basically think, "if this person gets £2700 of taxable income in one month, multiply by 12 that's £32400 a year, and a standard personal allowance is £11500 a year, so probably £20900 is taxable, at 20%, which is £4180, which is £348 a month, so we'll withhold £348."

    In reality their software is comparing a one-off income with 1/12th of all the standard annual allowances and tax rates, but to prove the maths it's easier to work with recognisable numbers just to sense-check the calculation.

    When you've had a tax deduction on your pension income but know you are not going to go over your annual allowance for the year as a whole because it was a one-off, there is a standard HMRC form you can fill out to get reimbursed without having to wait to the end of the tax year and waiting for HMRC to notice (or doing a full tax return). You can get from the .gov website, but HL might tell you when they confirm your gross and net amounts.

    HL will not necessarily know how much money you expect to earn over the course of the year and so may not automatically know you have overpaid and are in a position to reclaim, so they might not tell you if you don't ask. But their call centre might tell you how to do it as they are helpful chaps, although if you are not paying for any advice from them they might just suggest you contact HMRC (who again have a phone helpdesk, but might take a lot longer to answer the phone than HL do!)
    • ermine
    • By ermine 17th May 17, 9:11 AM
    • 539 Posts
    • 762 Thanks
    ermine
    • #8
    • 17th May 17, 9:11 AM
    • #8
    • 17th May 17, 9:11 AM
    the form you probably need is here

    https://www.gov.uk/government/publications/flexibly-accessed-pension-payment-repayment-claim-tax-year-p55

    It's worth reading/printing off the printed form even if you do it online, as the printed form has a better explanation of what the boxes mean than the online versions.

    I recently drew my entire year's income up to a shade of the HRT threshold, so they overcharged me tax as if I'd suddenly started working for Goldman Sachs and were earning over 40k a month. I disabused them of that assumption using that form and a couple of weeks later cheque arrives in the post. I was amazed that it went so quickly, I anticipated a long battle...
    • Wookey
    • By Wookey 17th May 17, 3:09 PM
    • 658 Posts
    • 313 Thanks
    Wookey
    • #9
    • 17th May 17, 3:09 PM
    • #9
    • 17th May 17, 3:09 PM
    You will also probably be taxed fully on any other withdrawals you make in the future as you only get 1 tax free lump sum withdrawal at 25% of total value.
    Norn Iron Club member No 353
    • Carolinemjs
    • By Carolinemjs 17th May 17, 9:08 PM
    • 83 Posts
    • 39 Thanks
    Carolinemjs
    You will also probably be taxed fully on any other withdrawals you make in the future as you only get 1 tax free lump sum withdrawal at 25% of total value.
    Originally posted by Wookey
    Can you please provide a link to this information, thanks
    • Dazed and confused
    • By Dazed and confused 17th May 17, 11:39 PM
    • 1,394 Posts
    • 571 Thanks
    Dazed and confused
    Guess he might be referring to this however I don't know it's explained very clearly,

    http://www.hl.co.uk/pensions/drawdown/how-does-it-work
    • Wookey
    • By Wookey 18th May 17, 9:37 AM
    • 658 Posts
    • 313 Thanks
    Wookey
    Guess he might be referring to this however I don't know it's explained very clearly,

    http://www.hl.co.uk/pensions/drawdown/how-does-it-work
    Originally posted by Dazed and confused
    Pretty much, any more withdrawals and you pay tax on it all, if you are under the personal allowance for that year you can claim it back but it will probably only be at year end that they will reimburse you.
    Norn Iron Club member No 353
    • bowlhead99
    • By bowlhead99 18th May 17, 11:28 AM
    • 6,424 Posts
    • 11,374 Thanks
    bowlhead99
    I think you are confusing two issues.

    If you have "crystallised" your pension by taking the full 25% of its value at that time as a tax free lump sum, then what is left undrawn from the value at that time will be taxed when it is eventually drawn. Which is fair because you can only have 25% of the whole thing as tax free. However, if you make further contributions, that new money is not crystallised at all. Just like the first chunk of money, you can have 25%tax free and 75% taxable.

    In OP's case, she took a lump sum out of her £3600 un-crystallized funds at that time and they let her have the 25% (900) taxable and the remainder she took (2700) taxable as per my example in post #7.

    If OP continues to contribute to the pension (she mentions she has since added another £2880) the new money is not crystallised yet -it hasn't had a lump sum taken from it) so a further tax free lump could be taken out of that new money.

    For Ermine it might be different, depending on how they've used their pension. Someone who this year took as much taxable cash as possible to use up their personal allowance and basic rate band, might have been taking that from un-crystallized funds in a ratio 25:75 taxfree: taxable, so the total cash they took this year was 60k+ but only 45k or so taxable, using up their bands. Or, perhaps they already took all of the tax free cash in the whole pot, either in this year or in some previous year, and so everything they are drawing from now on is taxable.

    But carolinemjs should not mix up her situation with that of other posters and read from Wookey that "you only get 1 tax free distribution and all the rest would be taxable" and worry she is going to pay lots of tax in the future.

    You only get 1 tax free distribution on every part of your pension but if you are taking ten un-crystallized funds lump sums in the course of a year, they could all have tax free bits in them if you would prefer that to having one big tax free lump at the beginning and the rest be all taxable.
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