Winding-up of money purchase pension scheme

jelindra

Hi everyone.

I was wondering if anyone could help. I've just recently received a letter from a previous employer statying that the pension scheme is to be wound-up.
There are 3 options forme to consider as follows:
1)Individual policy wuth Legal and General
2) Transfer to another pension arrangement
3) Cash lump sum (which was valued at £10,662.90 on the 15th feb)

Now I know if I take the lump sum I'll be charged tax but I'm not sure exactly how much I'd be charged,? If the tax is a large amount I'd probably be better off transferring it to my new employers work pension?

Thanks in advance for any help given.

molerat

25% is tax free and you will have to pay tax at the appropriate rate on the rest, £1599.43 if you are a basic rate tax payer. Tax however will be deducted on a 747L M1 basis (as it will be next FY when you receive it) meaning £2358.04 will be deducted and you will have to contact the tax office for a P53A to get a refund in year.

gazzie

Hi

I have almost exactly the same question - but have already received the winding up lump sum. My expectation was to pay 20% on the taxable element (being in the 20% tax bracket, even with the lump sum added to salary).

The tax is showing something like 32%.

The exact figures:
Value of account on surrender £14694.46
Tax free element (25%) 3673.61
Taxable element £11020.85

I would expect to pay 20% - £2204.17 - on £11020.85 but the actual figure comes out at £3568.66, more like 32%. It says "less PAYE tax on emergency tax code of 647L on 1 month basis" which I can't work out at 32% whatever I do!

I contacted HMRC and they couldn't figure it out, they thought it should be 20%. The pension company's letter originally said 20% too.

Can anyone help (molerat - you seem to have a grip on this!) and advise as I'm pretty sure I am owed over £1300 from someone!

Thanks

Gaz

dtaylor84

gazzie wrote: »

The exact figures:
Value of account on surrender £14694.46
Tax free element (25%) 3673.61
Taxable element £11020.85

I would expect to pay 20% - £2204.17 - on £11020.85 but the actual figure comes out at £3568.66, more like 32%. It says "less PAYE tax on emergency tax code of 647L on 1 month basis" which I can't work out at 32% whatever I do!

(Rounding a bit for simplicity)

The tax is calculated using tax code 647L M1 which means:

No tax due on personal allowance 6470 / 12 = £540
20% tax due on the next 37,400 / 12 = £3117
40% tax due on the rest.

£11020 is taxable

£540 personal allowance
£3117 taxable @20% = £623
£7363 taxable @40% = £2945

Total tax charged: £3568

If you have earned over £540 every month you will have already used the £540 personal allowance and will owe a further £108.

But, as you are not a higher-rate tax payer you will be due (40% - 20%) * 7363 = £1473 back. (Would be less if you had more than around £30k of other income and were pushed into the 40% band.)

So yes, assuming you've already used your full personal allowance for the year you're due £1473 less £108 giving a refund of £1365.

(Which, in a rather convoluted way, leaves £2203 tax paid, 20% of the taxable amount.)

gazzie

Hi

Thanks for that reply dtaylor84 - very well explained and something I could never have fathomed! It makes sense mathematically, though why they do it this very convoluted way way is beyond me when they had my NI number so could work out I am a 20% tax payer in no time.

The other part of my question is "how do I get my overpaid tax back?".

I can't find any information from HMRC about this scenario - is it the Form 53A that Molerat mentioned in his original reply? And do I need to wait for my P60 and P11D or can I proceed before receiving those? As I said before the HMRC help desk didn't know!

Thanks again

Gaz

RichandJ

gazzie wrote: »

Hi

Thanks for that reply dtaylor84 - very well explained and something I could never have fathomed! It makes sense mathematically, though why they do it this very convoluted way way is beyond me when they had my NI number so could work out I am a 20% tax payer in no time.

The other part of my question is "how do I get my overpaid tax back?".

I can't find any information from HMRC about this scenario - is it the Form 53A that Molerat mentioned in his original reply? And do I need to wait for my P60 and P11D or can I proceed before receiving those? As I said before the HMRC help desk didn't know!

Thanks again

Gaz

I believe you have tell the HMRC staff to search for it (form P53A) on their intranet, it doesn't appear to be available on the public internet site.

You'd think they didn't want you to have your overpaid tax back...

christibel

Can anyone advise if you have received this lump sum? I got a letter today about it.