Has anyone here done this?

xylophone

See post 15

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

See here http://www.pruadviser.co.uk/content/knowledge/technical-centre/taxation_on_pension_income/

There seems next to no point in hassling for the overpayment of tax?

You would rather let HMRC have it - that's very public spirited of you!

molerat

Blue_Parrot wrote: »

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.

They have not taxed any of it at 29.45%. Some will have not been taxed, some at 20% and some at 40%.

By my calculations to pay 29.45% tax with a code of 1100M1 means the total payout was IRO £11387 with £8540 being taxable and tax of £2515 being deducted. £917.43 tax free, £2667.30 taxed at 20% having £533.46 deducted and the remaining £4955 taxed at 40%, £1982 deducted. Your tax situation is therefore not correct. If, after these payouts, you remain a 20% tax payer tax of £1708 was due so £807 overpaid.

saver861

Blue_Parrot wrote: »

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!

I'm not sure why you were lead to believe it would be something else. If it is correct, you have not 'gained' £3k, its what you should have got in any case. If there has been a mistake, then they will want it back!

Blue_Parrot wrote: »

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.

It all sounds very confused but there would be every point in getting back whatever it is you are owed. I certainly would be doing it, and as mentioned earlier, reclaimed tax paid on a SIPP withdrawal with very little problem.

Blue_Parrot wrote: »

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.

It depends on who is telling you what. Personally I always work out what I am due in terms of payments, what my tax liability is etc etc, before I make any withdrawal. That way, when the process is started and completed, if it matches what my expected figures are then I know is right - if not, either my calculations or that of someone else is in error.

Blue_Parrot

molerat wrote: »

They have not taxed any of it at 29.45%. Some will have not been taxed, some at 20% and some at 40%.

By my calculations to pay 29.45% tax with a code of 1100M1 means the total payout was IRO £11387 with £8540 being taxable and tax of £2515 being deducted. £917.43 tax free, £2667.30 taxed at 20% having £533.46 deducted and the remaining £4955 taxed at 40%, £1982 deducted. Your tax situation is therefore not correct. If, after these payouts, you remain a 20% tax payer tax of £1708 was due so £807 overpaid.

Hi,

I don't know what you're basing those calculations on, since nowhere have I said what the payout would be before tax and only a very conservative guesstimate after tax.

The total payout was considerably more than your surmise: and I posted "they have taxed the remainder AFTER the 25% tax free," I do not yet know which tax code they applied - this will follow separately, later, according to the notification letter. However it seems unlikely to be code stated. If I'm wrong about this I'll come back and clarify for anyone who is interested.

Thanks for replying.

xylophone

I don't know what you're basing those calculations on, since nowhere have I said what the payout would be before tax and only a very conservative guesstimate after tax.

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.

You are withdrawing the whole of a pension pot.

If we work on the roughly estimated figures above (from your previous post) and are guided by http://www.pruadviser.co.uk/content/knowledge/technical-centre/taxation_on_pension_income/

then on a total pension pot of £20,000, PCLS is £5000.

One assumes that the pension provider will use the emergency code (1100M1) since HMRC will not have provided an accurate code.

The £15000 would then be treated as though it were a monthly salary.

£917 tax free

£2667 @20%

£9834 @40%

£1582 @45%.

Therefore the recipient would expect a payout of £5000 PCLS + (£15000-£5178.90) = £14,821.10.

Let us suppose that the recipient's only income in the tax year 2016-17 was to be that from the pension pot and that he was entitled to the standard personal allowance.

In that case, £11,000 of the £15,000 should have been tax free and £4000 taxed at 20%. Since under the scenario above, he would have paid £5178.90 in tax rather than the £800 he should have paid, he would (one assumes) want to have the overpayment refunded?

If the recipient did have other taxable income in the tax year, he might well still have overpaid tax on the pension pot - he might even have underpaid depending on his circumstances......

Blue_Parrot

I'm so sorry to be a pest. I have nearly got my head round this, thanks to the helpful posts and patience of people here.

The figures nearly make sense to me now - nearly but not quite.

Here's some exact figures. The policy was stated to be worth £23,591 last time we checked, two months earlier. The payout was £18,382. (ignoring pence). £5,211 has therefore gone in tax. (?)

Whole = 23,591
- tax free = 5897 (ie, 25%)
Difference = 17,693 which was taxed.

Using the tax deductions supplied (many many thanks, I am nearly there...) Tax taken = 533 at 20%, 3933 at 40% and 1923 at 45% but that adds up to 6389, not the 5211.

17,693 was taxed. This is made up of:
917 basic rate personal allowance therefore not included in tax total
2667 at 20% = 533
9834 at 40% = 3933
the remaining 4275 at 45% = 1923.

My head is spinning as is the very messy spreadsheet. I'm missing something or convoluting logic, or something.

I have had a look at the government forms P53 and P53Z. Both say at the end that they cannot process such forms without a P45 from the pension company. Will the pension company send one automatically or does one have to ring up and request it?

Sorry again to try anyone's patience, your assistance is appreciated.

molerat

A payout of £18382 suggests a total value of £25373 with tax deducted of £6992.

The pension co will send a P45.

saver861

Blue_Parrot wrote: »

Here's some exact figures. The policy was stated to be worth £23,591 last time we checked, two months earlier. The payout was £18,382. (ignoring pence). £5,211 has therefore gone in tax. (?)

Not sure if I'm reading this right. Are you saying your last known value of the policy was £23,591 which was two months prior to payout? It may well have moved somewhat in those two months so skewing your figures.

Do you not know what the policy was valued at on the day of withdrawal?

molerat

Blue_Parrot wrote: »

Hi,

I don't know what you're basing those calculations on, since nowhere have I said what the payout would be before tax and only a very conservative guesstimate after tax.

The total payout was considerably more than your surmise: and I posted "they have taxed the remainder AFTER the 25% tax free," I do not yet know which tax code they applied - this will follow separately, later, according to the notification letter. However it seems unlikely to be code stated. If I'm wrong about this I'll come back and clarify for anyone who is interested.

Thanks for replying.

My figures were based on your

they have taxed the remainder AFTER the 25% tax free, at 29.45%

because if 29.45% of the remainder was in fact paid in tax then it was a mathematical certainty, with a tax code of 1100M1, that the original figure was as I quoted.

Blue_Parrot

molerat wrote: »

A payout of £18382 suggests a total value of £25373 with tax deducted of £6992.

The pension co will send a P45.

Will they also send a breakdown of tax deducted?