Reclaiming tax on SIPP

Wookey

Dazed_and_confused wrote: »

Guess he might be referring to this however I don't know it's explained very clearly,

http://www.hl.co.uk/pensions/drawdown/how-does-it-work

Pretty much, any more withdrawals and you pay tax on it all, if you are under the personal allowance for that year you can claim it back but it will probably only be at year end that they will reimburse you.

bowlhead99

I think you are confusing two issues.

If you have "crystallised" your pension by taking the full 25% of its value at that time as a tax free lump sum, then what is left undrawn from the value at that time will be taxed when it is eventually drawn. Which is fair because you can only have 25% of the whole thing as tax free. However, if you make further contributions, that new money is not crystallised at all. Just like the first chunk of money, you can have 25%tax free and 75% taxable.

In OP's case, she took a lump sum out of her £3600 un-crystallized funds at that time and they let her have the 25% (900) taxable and the remainder she took (2700) taxable as per my example in post #7.

If OP continues to contribute to the pension (she mentions she has since added another £2880) the new money is not crystallised yet -it hasn't had a lump sum taken from it) so a further tax free lump could be taken out of that new money.

For Ermine it might be different, depending on how they've used their pension. Someone who this year took as much taxable cash as possible to use up their personal allowance and basic rate band, might have been taking that from un-crystallized funds in a ratio 25:75 taxfree: taxable, so the total cash they took this year was 60k+ but only 45k or so taxable, using up their bands. Or, perhaps they already took all of the tax free cash in the whole pot, either in this year or in some previous year, and so everything they are drawing from now on is taxable.

But carolinemjs should not mix up her situation with that of other posters and read from Wookey that "you only get 1 tax free distribution and all the rest would be taxable" and worry she is going to pay lots of tax in the future.

You only get 1 tax free distribution on every part of your pension but if you are taking ten un-crystallized funds lump sums in the course of a year, they could all have tax free bits in them if you would prefer that to having one big tax free lump at the beginning and the rest be all taxable.