Pension Tax reclaiming via P45?

gavva1

Hi all, hope somebody can help - I'm helping my Dad with his options for retirement, he's 67 & currently earning 26k a year, plus his £10k state pension. He has a Pension with Aviva, with a current value of 34.5k.

I just had a chat with TPAS & Aviva, & I was informed he may be able to draw the whole sum out (which would put him into the 40% tax bracket) & reclaim the tax on the pension sum from HMRC, using a P45.

I've tried ringing HMRC, but I was cutoff "we're busy, goodbye!" He's self-employed, & the pension is the result of a mis-sold Endowment Mortgage.

He wants to access as much of the pension pot as possible, without being hit for tax. We're awaiting an "options pack" from Aviva, which will give a few actual figures, relating to different scenarios.

None of this seems straightforward at all:mad:, can anybody shed any light on whether he will be able to claim tax relief on the entire 34.5k, & if not, would income from this private pension, year-on-year, also be subject to income tax?

xylophone

https://www.pensionwise.gov.uk/?gclid=CL_l_fvbwMsCFUFM2wod7EIFxQ

Your father can make an appointment.

Your father intends to continue with his job as well as access his Aviva pension?

He would be able to take a Pension Commencement Lump sum of 25% of the pension - the balance would be taxed as income in the year of receipt.


If he took the whole of the balance, he would overpay tax because the pension provider would tax on a month 1 basis.

See http://adviser.royallondon.com/news/pensions/2015/april/emergency-tax-and-lump-sum-withdrawals/

gavva1

Your father intends to continue with his job as well as access his Aviva pension?


I think he's planning to reduce his hours gradually, would accessing his pension alongside working cause any tax issues? We're awaiting an Options pack from Aviva, to try & find out what the monthly (weekly?) payments would be, so he can compare this to taking the whole lot.

He's a frugal type, so there'll be no "trips to vegas", & essentially we're trying to weigh up the best option, he's not great with numbers so I'm trying to steer him towards the best option for him, whether this is to take the lot, or maybe take 25% tax-free & get the rest paid out monthly.

Tbh, I know very little about this area, & it doesn't seem to be straightforward at all!

xylophone

You just need to understand that anything over the tax free PCLS will be taxed as income in the tax year of receipt.

The personal allowance will be £11000 in 2016-17.

Your father has earned income and state pension income already.

Presumably at the moment, the tax code on his salary reflects the fact that he receives a state pension, reducing his tax code.

This means that at the moment, he is paying 20% tax on virtually all of his salary.

If he takes income from his private pension, he might wish to ensure that he only takes enough to keep him within the 20% band.

When he takes his first payment he is likely to overpay tax ( see link in my post above) but for subsequent payments HMRC would issue a code to the pension payer.

Your father might find an appointment with Pension Wise helpful.

xylophone

Another thought, your father might prefer to put his state pension into deferment while he draws down his private pension to supplement his income.

https://www.gov.uk/government/publications/deferring-your-state-pension