Has anyone here done this?

Blue_Parrot

Take cash from pension pot ----> put on emergency rate tax ----> withdrawal treated as if it's the first one ongoing monthly payments (instead of the once-off it actually is) ---> tax code 1000L M1 ----> thousands of pounds of tax overpaid.........

Fill in P53 form to reclaim overpayment.

Has this scenario actually happened to anyone here, did you fill in P53 (other sources of income) or P50 (only State pension otherwise), and how long did it take to get the overpayment back?

Source: http://www.thisismoney.co.uk/money/pensions/article-2966766/Savers-using-pension-freedom-warned-pay-emergency-tax.html

bigfreddiel

Just logon to your personal tax account and change it online yourself simples!

You access your personal tax account from the .gov web, and you will need to be verified or have a gateway account, both easy to setup or apply for.

Cheers fj

Blue_Parrot

Thanks bigfreddie but it's not as simples as that - is anything ever?

Firstly HMRC seem to be already set up for this scenario:
Income Tax: repayment claim when small pension taken as a lump sum (P53)

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


Secondly, it hasn't happened yet, but seems likely in the next few weeks;


Thirdly, I run the payroll for our small business. Therefore it seems to me, I would get "instructions" to OverPay tax from HMRC, and would then have to apply for refund from HMRC. Wouldn't it be easier and more efficient for me to cut out the middleman, and not overpay HMRC in the first place?



Imagine the phone conversation: I've overpaid you as instructed, now I want a refund as entitled..........

saver861

Blue_Parrot wrote: »

Fill in P53 form to reclaim overpayment.

Has this scenario actually happened to anyone here, did you fill in P53 (other sources of income) or P50 (only State pension otherwise), and how long did it take to get the overpayment back?

Yes - did it no problem. Put on emergency rate - claimed back which took about 6 weeks from recollection. Straightforward.

dunstonh

Most common ones are P50Z, P53Z or P55 for cash lump sum. P53 is full fund trivial payment.

If you fill in the right form it should be less than 30 days. If you fill in the wrong form, it will likely be longer than 30 days (although filling in the wrong form will still do the process but HMRC will correct it internally - hence the extra delay)

Blue_Parrot

saver861 wrote: »

Yes - did it no problem. Put on emergency rate - claimed back which took about 6 weeks from recollection. Straightforward.

Did they (HMRC) send you/your employer a new tax code, not on Emergency Rate?

Blue_Parrot

dunstonh wrote: »

Most common ones are P50Z, P53Z or P55 for cash lump sum. P53 is full fund trivial payment.

If you fill in the right form it should be less than 30 days. If you fill in the wrong form, it will likely be longer than 30 days (although filling in the wrong form will still do the process but HMRC will correct it internally - hence the extra delay)

Trivial payment rules have changed, yes?

I'm looking at one pension firm (pension firm 1), two policies which we want to liquidate.

There is another much larger, on-going, pension pot, not referred to here (pension firm 2).

This is pension firm 1, another tiny pension IMO. The two policies add up to over £20,000, the after-tax calculations result in a very conservative estimate of £15,000 pay-out but with too much tax being paid, hence the reclaim form question.

Pension firm 1's policies have not been paid into for years. We want to de-clutter all this and get a lump sum.

What would happen if I did not apply the emergency rate when doing the payroll, because I know that if I did that, I'd only have to apply to get the overpaid tax back?

I wish this wasn't so stupidly overcomplicated: over-applying tax and obliging people to "ask" for it back.

molerat

The pension company apply the tax code when they pay out as a "second employer". You can only apply the tax code given to you by HMRC. I am a bit confused as to how you can be applying tax codes to a pension pay out.

saver861

Blue_Parrot wrote: »

Did they (HMRC) send you/your employer a new tax code, not on Emergency Rate?

I claimed back the emergency tax paid from HMRC and as I say came within about 6 weeks.

In my case it was Mrs S account I was dealing with who is currently a non tax payer. We transferred her remaining allowance to HL who is the provider in our case. When we take this years money from the SIPP, HL will have the tax allowance to work with so will only tax anything over that allowance.

Mrs S is retired on occupational pension so no employer to deal with.

As things go in terms of HMRC, the whole process was very smooth in relative terms - not often one can say smooth and HMRC in the same sentence!!

Blue_Parrot

molerat wrote: »

The pension company apply the tax code when they pay out as a "second employer". You can only apply the tax code given to you by HMRC. I am a bit confused as to how you can be applying tax codes to a pension pay out.

Me too.

The pension company pay 25% tax free. The remainder will be taxed at 40% or maybe even 45%. This despite the recipient not being in the 40 or 45% tax band. And/or being taxed at the emergency code of 1100L.

I do not understand (again) why cashing in a small pension pot, should cause all this extra work on the part of the taxpayer, and why it is so hard for the taxpayer to try to find out what will happen next, and deal with it!

dunstonh

Trivial payment rules have changed, yes?

Yes. Only applies to defined benefit schemes now. Not personal pensions.

What would happen if I did not apply the emergency rate when doing the payroll, because I know that if I did that, I'd only have to apply to get the overpaid tax back?

The pension provider does it. Not you.

I wish this wasn't so stupidly overcomplicated: over-applying tax and obliging people to "ask" for it back.

Its logical when you realise why it is done. The 75% is income. its not a lump sum. Yes, it is referred to as a lump sum and a single amount is a lump sum in that respect but effectively, it is one income payment under PAYE. So, the same rules apply to it as employed income. Pensions also provide P45s and P60s.