100% crystallised SIPP - Tax on Drawdown

Legacy_user

I was talking to a friend over lunch about our SIPPs and she mentioned that now hers is 100% crystallised as she has taken 25% tax free of the whole fund , but she also said that she she has been told that any amount she takes out will be taxed at 25%?

I explained that I thought that was incorrect but she insists that this is what her financial advisory said.

My understanding is that any amount that she takes out will be subject to income tax but that if its below her tax free amount then she wont have to pay any tax.

I tried to find an answer to this question from my SIPP website (Barclays AJ Bell) but I can't find anything. I am now worried as I was planning on taking my maximum tax free sum this year and then to take draw-down amounts to keep under my tax free allowance each year going forward.

robber2

Your understanding is correct and is confirmed in the FAQs of HL.

http://www.hl.co.uk/pensions/drawdown/faqs

Rob

dunstonh

There is a general rule of thumb that someone will forget around 70% of what you tell them within a very short period. She probably took some bits in but forgot the rest.

There is no 25% income tax band.

zagfles

Pensions are taxed the same as earned income (except no NI). So yes you can use your personal allowance if you have any spare and the basic rate of tax is 20%. So either she misunderstood or the financial adviser doesn't know what they're taking about.

System

dunstonh wrote: »

There is a general rule of thumb that someone will forget around 70% of what you tell them within a very short period. She probably took some bits in but forgot the rest..

I think this is the case, she hates finance and probably a bit stressed by the whole thing.

System

As a follow up I have found something that implies that Barclays/AJ Bell will take off income tax before paying drawdown payments, Is this normal practice it so means I will have to reclaim it later.

Linton

hullfiona wrote: »

As a follow up I have found something that implies that Barclays/AJ Bell will take off income tax before paying drawdown payments, Is this normal practice it so means I will have to reclaim it later.

All drawdown payments other than the TFLS go through PAYE in exactly the same way as payments from employment. So as soon as HMRC are aware of your new "employment" they will issue a tax code. They only become aware once the first payment has been made. Therefore the pension company must use some default emergency taxcode for that first payment. This will usually result in excess tax being deducted.

This excess tax will be repaid automatically by PAYE in your next drawdown in the current tax year once HMRC have supplied the tax code to the pension company. However if there are no other drawdown payments in that tax year you will need to claim back the tax yourself or wait until after tax year end. See https://www.gov.uk/claim-tax-refund/you-get-a-pension

AnotherJoe

dunstonh wrote: »

There is a general rule of thumb that someone will forget around 70% of what you tell them within a very short period. She probably took some bits in but forgot the rest.

There is no 25% income tax band.

Sorry dunstonh, what did you say? Something about thumbs?