Can Someone tell me how much I would pay to HMRC?

loveandlight

I have a pension pot of £60k. My tax code is 1150L.

I am allowed to take out £20k at 20% tax under the pension freedom rules according to HMRC and the remaining balance would attract tax at 40% if I withdrew it. Does that mean I would have to pay 40% on the remaining £40k so I would be paying £16k in tax on the £40k?

Thanks

enthusiasticsaver

Do you not qualify to take out the 25% tax free lump sum? As I understood it the first 25% is tax free and anything over that taxed at your marginal tax rate. Is this the only pension you have and how old are you?

loveandlight

I am 56. I had £80k and withdrew £20k and used it to pay off debts. That has left me with £60k. Any money I take out I get 25% tax free. I just don't understand how the tax calculation works and am trying to understand it. I phoned HMRC and asked them but they didn't seem to know either.

I have a property portfolio as my pension.

enthusiasticsaver

So the £20k was your TFLS so the remaining £60k should you draw it out in the same tax year is taxed at your marginal rate of tax. Are you a basic rate taxpayer or higher rate? If you take it all out in one tax year you will definitely pay higher rate on some of it. I think it just counts as income so if you earn £20k then roughly £20k would be taxed at basic rate and the remaining £40k as higher rate. You should take it out at the most efficient tax rate for you so it depends on how much you earn and how much of your personal allowance is used up by salary. I am no tax expert though but I am surprised the tax office could not explain it to you.

All I can say is when my husband (higher rate tax payer) retired in October last year he received his 25% tax free lump sum with the option to take the rest of his DC pension should he wish. If he had taken that he would have paid 40% on the whole lot so we left it invested. Now he only has his DB pension as income he is just a basic rate tax payer in this tax year going forward so if he drew on the remaining pension he can pay basic rate tax on it up to the higher tax threshold.

enthusiasticsaver

loveandlight wrote: »

I have a pension pot of £60k. My tax code is 1150L.

I am allowed to take out £20k at 20% tax under the pension freedom rules according to HMRC and the remaining balance would attract tax at 40% if I withdrew it. Does that mean I would have to pay 40% on the remaining £40k so I would be paying £16k in tax on the £40k?

Thanks

In this scenario above then the total tax paid would be £20k if you withdrew the whole £60k out in one go. £20k at 20% (basic rate) gives £4k and £40k at 40% is £16k. Why would you do that though? At least spread it over a few tax years to cut down on the tax paid.

loveandlight

Thanks. I think that's answered my question. I would pay 40% on the remaining £40k so on £60k I would end up paying £16k.

enthusiasticsaver

loveandlight wrote: »

Thanks. I think that's answered my question. I would pay 40% on the remaining £40k so on £60k I would end up paying £16k.

You would also pay 20% on £20k so you would pay £20k in total as detailed above. £4k + £16k

enthusiasticsaver

This makes the assumption though that you earn £20k and use all of your personal allowance at the moment.

loveandlight

I'm emigrating so am considering just drawing it all down and taking it with me. I really appreciate you taking the time to reply.

enthusiasticsaver

£20k is a lot to pay in tax as a percentage of that £60k so I would be looking to reduce it by taking it over 2 or more tax years but I am not sure of the rules if you are emigrating and whether you are entitled to a personal allowance. I would get some advice on that from someone who understands tax on british citizens living abroad.

xylophone

https://forums.moneysavingexpert.com/discussion/comment/71631208#Comment_71631208

You ended up by transferring four company pensions to a SIPP with HL and then took a 25% PCLS?

Your property investments are held in your company?

Do you receive other income in addition to your pension income?