Pension tax

TILLY2001

I plan to retire next July at the age of 62, I will not receive my government pension until November 2017. I will have savings to live on until then. I have a work pension of £11,000 and wanted to take all of it as a lump sum, as I will not be earning, will I still have to pay tax on 75%.

nearlyrich

TILLY2001 wrote: »

I plan to retire next July at the age of 62, I will not receive my government pension until November 2017. I will have savings to live on until then. I have a work pension of £11,000 and wanted to take all of it as a lump sum, as I will not be earning, will I still have to pay tax on 75%.

Is the £11000 the amount in your pension in total or is it a yearly payment?

xylophone

I have a work pension of £11,000 and wanted to take all of it as a lump sum, as I will not be earning, will I still have to pay tax on 75%.

Can you be more precise about what kind of work pension this is?

TILLY2001

I pay into this pension and so does my employee, but should I leave and move to another job i can take it with me. The £11,000 is the total amount in the pension pot. This pension was started in 2009.

jem16

TILLY2001 wrote: »

I pay into this pension and so does my employee, but should I leave and move to another job i can take it with me. The £11,000 is the total amount in the pension pot. This pension was started in 2009.

So you will get £2750 as your tax-free lump sum. The other £8250 is taxable income but if this is your only income then you would get that tax-free too as it's below the Personal Allowance of £10,600.

However it is likely that you will pay tax initially as the PAYE system will look at that as if you are receiving the same amount each month. Once you receive a P45 from the pension provider you can then claim back the tax from HMRC.

mgdavid

It depends on when you take the money out of the pension. If you take it in July/August just after you retire, then you will almost certainly pay some tax on it as you need to add the £8250 to whatever you will have earned in the 4 months April to July, to get your total taxable income for the year. Any extra over the £10600 personal allowance will be taxable at 20%.

atush

TILLY2001 wrote: »

I pay into this pension and so does my employee, but should I leave and move to another job i can take it with me. The £11,000 is the total amount in the pension pot. This pension was started in 2009.

AS the pension pot is 25% tax free, i'd put some extra money in it between now and july, dare I say even savings.

Then in july, you can take 25% of the whole pot tax free. Then I would wait until April 6th 2016, when you have no earned income, and therefore a full PA and take the rest then? You would bascially get it tax free?

You may have to transfer to another pension to do this, as your provider may not allow it.

atush

jem16 wrote: »

So you will get £2750 as your tax-free lump sum. The other £8250 is taxable income but if this is your only income then you would get that tax-free too as it's below the Personal Allowance of £10,600.

However it is likely that you will pay tax initially as the PAYE system will look at that as if you are receiving the same amount each month. Once you receive a P45 from the pension provider you can then claim back the tax from HMRC.

Sorry, I thought she would have earned income this year to use up some of the PA

kidmugsy

It is one of the peculiarities of British English that there is no standard meaning of "next July": it could mean July 2015 or July 2016.

jamesd

TILLY2001 wrote: »

I plan to retire next July at the age of 62, I will not receive my government pension until November 2017. I will have savings to live on until then. I have a work pension of £11,000 and wanted to take all of it as a lump sum, as I will not be earning, will I still have to pay tax on 75%.

I suggest that you set it up to withdraw the 75% as even monthly amounts. The first month you will pay too much tax then you can notify HMRC and they will be able to adjust your tax code so that no tax is deducted. Just wait for their first notice of coding about it and fill in the online form to tell them about your total income.

You do have the option of taking all of the pot including all of the 75% as a lump sum. that would cause more tax to be deducted but there's a form you can fill in to claim it back.

The monthly payment option is probably most convenient.

jem16

atush wrote: »

Sorry, I thought she would have earned income this year to use up some of the PA

No you may well be correct. I was assuming she was taking it in a tax year when there was no other income at all.