tax implications of a pension withdrawal

zygurat789

molerat wrote: »

Other web sites suggest BR would be used, as posted by OP in #18, but it seems impossible to find the real answer on the new dumbed down .gov site. http://www.litrg.org.uk/tax-guides/pensioners-tax/how-do-i-cash-in-my-small-pension-trivial-commutation

There is an awful lot of rubbish to be found on websites.
If you follow the instructions for a new starter with no information on the gov.uk site the code you have to use is 0T M1.

zygurat789

molerat wrote: »

You will only "pay 1/3" in tax due to the way lump sum pension payments are taxed in accordance with HMRC regulations, the same as in any job where you are given the emergency tax code (1060LM1). You should be able to reclaim around £2000 of that tax once you have the P45.

But, moley, old fellow, the OP is self employed, he will have to collect any refund through his tax return.

zygurat789

billozz wrote: »

hi all quick question,
i have a pension pot of £20,000 that i would like to take as a lump sum. i understand that i will get 1st 25% of it tax free then pay tax onthe balance. 2 questions,
i earn £28,000 p/a and am self employed, will the £15,000 take me into the 40% tax bracket and if so would someone tell me what tax i will end up paying please.
if i leave the balance and then withdraw a smaller ammount next year, for instance £10,000, then the remaing £5000 the year after will this change my tax liability.
thanks hope i have explained it ok but basically i am loathe to pay 40% and if taking it in chunks will help with that then i will try to do that.
thanks
Bill

If, for the sake of an example, your year end is 31 December 2015, then your accountant could have your accounts and 2015/16 tax calculation sorted before the end of February 2016 and you would have time to request a drawdown of the 25% TFLS and a taxable amount to ensure that you are not liable to 40%, before 5 April 2016. You will, of course, have to suffer the deduction but it will be refunded when your tax return is submitted in April 2016. You are going to have to work hard to adhere to tghis timetable.
If your YE is March you've chosen a really bad YE and you can't do this,
if your YE is between April and December it is easier the earlier it is.

mgdavid

I'm retired, and have several streams of pension income, each with their own tax code.
In the first couple of weeks of this new tax year, and before any Coding Notices had been issued, I took a 5-figure drawdown from my SIPP; it was taxed at BR as I expected.

zygurat789

mgdavid wrote: »

I'm retired, and have several streams of pension income, each with their own tax code.
In the first couple of weeks of this new tax year, and before any Coding Notices had been issued, I took a 5-figure drawdown from my SIPP; it was taxed at BR as I expected.

And have you had taxable and taxed income from that particular stream before?

mgdavid

yes, took a small drawdown last tax year.

zygurat789

mgdavid wrote: »

yes, took a small drawdown last tax year.

Then you are not comparing like with like since the OP is unknown, for tax purposes, to the pension co. Even so BR could leave you in a position of underpaying your tax with all your income streams and drawdowns, still I don't suppose you would have any difficulty finding the underpayment given all those income streams and drawdowns.