Has anyone here done this?

Blue_Parrot

dunstonh wrote: »

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



The pension provider does it. Not you.



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.

Many thanks for this reply, but I still feel as if I'm banging my head against a wall.

Are you saying that, having been informed by the Personal Pension lot of the once-off-lump-sum-which-is-regarded-as-income, HMRC do not issue a new Tax Code to the employer-who-does-the-payroll-from-that-month-on?

That's not what it says here: "Those taking out a lump sum will be judged as if they were starting the first of monthly withdrawals - and taxed as if they were going to keep this up for the rest of the year."

And here: "The problem of emergency tax being taken arises because HMRC systems will treat withdrawals from a pension scheme as the first of ongoing monthly payments. They are placed on tax code '1000L M1' - the 'M1' stands for 'month one'."

Those quotations are now over a year old, but I can't see that anything has changed other than raising the 40% tax band to £43,000.

mgdavid

It certainly does not work like that in all cases, viz: my own. I took a single drawdown sum for the year in April 2015 (having just moved a few old pots into a newly-set-up SIPP) and the SIPP administrators taxed me at BR. Did the same last month for this tax year and again was taxed at BR. I should add that I have other DB pensions which more than use up my PA and I calculated the DD request to just stay within BR band. No question of a Month1 situation at any time.
I should add that I had spoken to HMRC beforehand about my intentions so can only assume that (1) common sense prevailed and (2) they believed me, and issued a BR Coding notice to the SIPP admin team, but I didn't see a copy for last year.

dunstonh

Are you saying that, having been informed by the Personal Pension lot of the once-off-lump-sum-which-is-regarded-as-income, HMRC do not issue a new Tax Code to the employer-who-does-the-payroll-from-that-month-on?

As HMRC handle the refund directly and not through the tax code, you would not expect a tax code change (although it could be possible depending on other earnings). The pension provider handles the initial tax and coding. There is no need for any other input.

The way they do things for full fund withdrawal and partial fund withdrawal are different.

That's not what it says here: "Those taking out a lump sum will be judged as if they were starting the first of monthly withdrawals - and taxed as if they were going to keep this up for the rest of the year."

It is taxed as month 1 income.

Income is nearly always paid on a frequency. So, PAYE was built with the majority in mind. You need to think of the taxable pension lump sum as income.

xylophone

You are taking a pension for the first and only time in full.

You will apply to the pension provider to arrange this.

The pension provider will pay the 25% tax free PCLS and the balance taxed on a month 1 basis.

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

You apply for an in year refund on the appropriate form (see above).

Where a pension is not being taken in full, HMRC will issue a tax code to the pension provider for future withdrawals.

For example, let's suppose that a person has a small occupational pension, state pension and SIPP and intends to take as much from the SIPP as will keep him within the basic personal allowance.

He will receive his PCLS from the SIPP and his first "income" lump sum for the year - he will pay overpay on the income.

He claims the overpaid tax back from HMRC.

He also tells HMRC that he wishes to split his tax allowance between the occupational pension provider and the SIPP provider.

The code for the occupational pension is adjusted to allow for the state pension - let's say this leaves him £2000 of personal allowance to use up.

This will be the code for the SIPP provider.

saver861

xylophone wrote: »

He also tells HMRC that he wishes to split his tax allowance between the occupational pension provider and the SIPP provider.

The code for the occupational pension is adjusted to allow for the state pension - let's say this leaves him £2000 of personal allowance to use up.

This will be the code for the SIPP provider.

Pretty much exactly how we do it.

Mrs Saver has an occupational pension of just over £7k. She puts in her £2880 into her SIPP and the nice HMRC puts in their £720.

Mrs S has her £11,000 tax allowance split three ways. £7127 allowance allocated to occupational pension provider, £2,773 allowance allocated to the SIPP provider (HL) and £1,100 allocated to her absolutely gorgeous husband.

Thus, in terms of the SIPP, input £2880 in April, wait until HMRC applies £720 and then make a UPFLS withdrawal of £3,600. Taxed on £27 so just over £5. i.e. UPFLS is 25% tax free and remainder taxable.

Thus £715 for jam! No problems and easy to do. So will be doing it at least until she reaches state pension age and while the rules stay the same.

xylophone

absolutely gorgeous husband.

The opinion of Mrs S or Mr S?:)

Blue_Parrot

The penny has dropped (at last)! :j

I was looking at this from the Payroll point of view, and was under the impression that the code/rate at which the small pension company would tax the lump sum, would apply to the salary for the remainder of the tax year.

But this is not the case, I conclude from these very helpful and patient posts in this thread (I have clicked 'thank you' a couple of times). All this overpaying tax and reclaiming overpaid tax, will apply ONLY ONCE and not thenceforward.

I have to say (in my defence) that this is not blindingly obvious from way all these pieces/articles are written (various links quoted). The penny dropped when I read down the link provided by xylophone. The flow-chart in that link is also excellent, IMO.

Thank you, all who have replied, for putting my mind at rest. :T

(I wonder if I'm the only one here who operates a payroll as well as having multiple pension sources?)

mgdavid

Blue_Parrot wrote: »

............
(I wonder if I'm the only one here who operates a payroll as well as having multiple pension sources?)

'operates a payroll...' - does that constitute 'work'?
Heaven forbid

saver861

xylophone wrote: »

The opinion of Mrs S or Mr S?:)

Well .... we sit down and debate it .... then we decide I was right all along!! Lucky woman is that Mrs S ....

Blue_Parrot wrote: »

The penny has dropped (at last)! :j

I have to say (in my defence) that this is not blindingly obvious from way all these pieces/articles are written (various links quoted). The penny dropped when I read down the link provided by xylophone. The flow-chart in that link is also excellent, IMO.

Usually these things are not blindingly obvious .... the answers are there but often buried in the deep .... one of the good things about forums such as this, someone has been through it and have already got most of the answers.

Blue_Parrot

I'm posting this update in case it helps someone else.

The money has arrived from pension firm 1, much faster than I'd anticipated, and £3,000 more than I'd been lead to believe it would be!

After careful calculations I have determined that they have taxed the remainder AFTER the 25% tax free, at 29.45%, not the 40% or 45% which I'd been "warned" about.

There seems next to no point in hassling for the overpayment of tax? I was told we'd end up paying about £7,000 in tax, which would have to be reclaimed, but we did not.

Seems like a result to me, and I'm now wondering if there is a lot of scaremongering going about wrt cashing in small pension pots like this.