Refund of excess tax on pension drawdown, costs compensation?

shineondiamond

Hi, I took a maximum one off ANNUAL lump sum from my private pension to fund some property improvements. I am not drawing on it regularly yet. The Tax office decided to deduct at source as if it was my new MONTHLY income, and have taxed me just under £9000 too much, even if I accept I have paid all my annual income tax for 17/18 by June 17.

On the phone they accept it is wrong, but say it takes time to pay me back, that's just the way it is. I filled their form P53, and they posted me a second tax code with a T and an X in it, meaning they are reviewing it, I believe. It is 5 weeks now.

In the meantime I have had to borrow to complete the payment for the property work while I wait for this to be refunded to me - repayments will be tight to afford on my small works pension. CAN I MAKE A CLAIM FOR THE COST OF INTEREST I HAVE INCURRED ON THIS? I worry the tax office are going to hang on to it till the end of the tax year and I can't afford to borrow to lend the state £9000 for months!

madgagoo

In a word, no you can't. The PAYE regulations have been correctly applied and therefore I see no reason you should be entitled to anything, other than a repayment of tax.

shineondiamond

I don't understand the PAYE regulations on this. Is it considered correct to apply tax to what was identified as an annual pension payment as if you were going to receive that amount every month for the year? ie, assuming £20,000 pa was going to be £240,000? It seems an odd way to go about things.

TadleyBaggie

Income is assessed on a month by month basis, so what happened is quite normal under PAYE rules. No one is going to pay you compensation.

Did you take any financial advice before getting the one-off payment on the possible consequences?

p00hsticks

According to this recent article from the Daily Telegraph which discusses this situation, you should get a refund within 30 days providing you have completed the right form (although it's not clear if that is calendar days or working days)

http://www.telegraph.co.uk/pensions-retirement/tax-retirement/dipped-pension-cash-stung-20170-tax-bill/

shineondiamond

Yes, I went through the financial adviser I got the pension through. He didn't mention they would take more than half of it in tax. I have only just been made redundant/early retired in Feb, had a monthly income from a job for 35 years, PAYE before, so I must be naïve, and I am amazed that it is considered normal to take this sort of overpayment up front. Even with the one off lump sum I will still be below the higher rate tax threshold for 17/18, and I have already paid nearly £17000 tax by June. MSE tax calculator says I should be paying around £7000 for the year. It might be procedure, and everyone accepts it, but it doesn't seem morally right to me to take this sort of overpayment from people for whom 10k is a big percentage of their income. Also wasteful if lots of people have to make a claim.

shineondiamond

p00hsticks wrote: »

According to this recent article from the Daily Telegraph which discusses this situation, you should get a refund within 30 days providing you have completed the right form (although it's not clear if that is calendar days or working days)


Thanks, that is reassuring. I hope they gave me the right form, because there seems to be a few on the website. It is my first experience of dealing with the tax office phone line too, on my third call I took note: I was six minutes waiting while they told me about different parts of their website for possible enquiries I might have and to listen to a documentary on the benefits of voice recognition, with no opt out, and when I finally reached the queue it took another eight minutes to reach a person. Any time I call is always an unusually busy time. The first person I spoke to said she would post me the form, sorry there is no email version but it would only take a couple of days, the second person said she shouldn't have said that, they allow 10 working days plus post time, and I can fill it in online. When I got off the phone I found there was P53 and P53z, I wasn't sure so I just filled in the one that eventually came in the post.

xylophone

See http://adviser.royallondon.com/technical-central/pensions/benefit-options/emergency-tax-and-lump-sum-withdrawals/

badmemory

Please be aware that if you have other ongoing taxable income they may not refund the tax but send the P45 info to that employer/pension provider, who is then expected to refund you, but if it is reassure they won't, they just put the full figures in this years P60.

sheramber

You are in receipt of other taxable income which must be taken into account to calculate any overpayment.

It is not a case of dealing with the drawdown payment in isolation.