UFPLS Tax rate

SteveIM

I've been enquiring about taking my pension out as a lump sum under the new rules coming in in April. My pension fund is with Abbey Life and I was shocked to see the quote they sent me had tax of £11,345 on a gross taxable lump sum of £28,662 leaving me just £17,316.


They say "the emergency tax that HMRC have stated we must apply is based on a month 1 basis" and that "the taxable element of the UFPLS payment is effectively treated as income received in a single month".


So, only £833.33 is taxed at 0%, £2,648.84 at 20%, £9,851.16 at 40% and the remaining £15,279.01 at a whopping 45%.


To add to this HMRC say that I can only claim back any overpayment next year!


Are all pension providers doing the same?

wallpaperman

I'm sure all pension providers will be the same, that is certainly the same way that the company I work for will be deducting tax.

I'm not saying this was kept quiet deliberately, but it's not been really publicised in the media until fairly recently.

Most people were probably expecting it to be taxed the same was as existing triviality, which is not really realistic when people who cash in fairly large sums would be left owing HMRC money.

With regards to claiming overpaid tax, I have heard that if you leave it to HMRC to do it automatically, it will be the end of the following tax year.

You should still be able to hurry it along by completing either a P50 or P53 yourself as far as I understand.

SeniorSam

It seems that these are the rules that apply on the new system. I saw this mentioned in the Mail on Sunday. We have to wait for the tax to come back a year later.

Not sure if this would be the case if you did not fully encash. Worth checking with your provider

Daniel54

If you are still workng or have other taxable income,,the pension drawdown is added to this and taxed as additional income - from your figures this would appear to be the case

You will therefore save tax by taking the pension progressively over different tax years

xylophone

http://www.lcp.uk.com/media/958960/pensions-taxation-act-2014-guide.pdf

Page 9

http://www.ftadviser.com/2015/02/24/pensions/personal-pensions/aegon-urges-caution-to-avoid-nasty-ufpls-surprises-AVSiZQA2NReC1BTWobmWZI/article.html

http://www.thisismoney.co.uk/money/pensions/article-2919917/How-avoid-overpaying-tax-pension-cash-April.html

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

https://www.gov.uk/government/publications/income-tax-claiming-tax-back-when-you-have-stopped-working-p50

dunstonh

My pension fund is with Abbey Life and I was shocked to see the quote they sent me had tax of £11,345 on a gross taxable lump sum of £28,662 leaving me just £17,316.

The 75% is taxed as month one earnings.

I'm not saying this was kept quiet deliberately, but it's not been really publicised in the media until fairly recently.

It has been this way for over a decade. So, its nothing new. The media is no way to learn about these things. You only get a bit of info that is often wrong and incomplete.

To add to this HMRC say that I can only claim back any overpayment next year!

You can apply to heard it paid earlier by filling in the appropriate form and sending it to them.

Are all pension providers doing the same?

Yes.

Most people were probably expecting it to be taxed the same was as existing triviality, which is not really realistic when people who cash in fairly large sums would be left owing HMRC money.

it is taxed the same way as triviality. That too was month one earnings unless you sent them your P45.

wallpaperman

Sorry DunstonH, you are wrong about how tax on triviality is currently deducted. I deal with this every day at work.

It was on a month 1 basis until 6 April 2013, however, from that date it was taxed at BR, i.e. 20%, the same as small pot commutation.