Taking tax free allowance out in one go

wooder

For a retired non earner is there a way of taking the whole maximum tax free personal allowance of £11850 from my crystallised drawdown personal pension immediately after 5th April without having the tax stopped and then having to go down the P55 route to get it back (took 3 months last year) ? For info - I've already had the 25% tfls.

frugal90

I am interested in responses to this as I will be in this position in just over a years time. Want to take the tax free allowance and 25% from my SIPP in one go. Then the same thing over the next two years until defined benefit pension kicks in.

xylophone

From what I can gather, even if the provider has a tax code, if you take out the allowance in a lump sum as you suggest, tax will be deducted.

If you take it in equal amounts on a monthly basis like a regular salary and have the standard tax code, then you will pay no tax because you will be within your monthly tax free allowance.

See

https://www.litrg.org.uk/tax-guides/pensioners-and-tax/what-tax-position-when-i-take-money-my-pension-flexibly

under



If you have taken only part of your money out of a pension pot

Linton

Withdrawal of the taxable part of the pension pot is managed under PAYE. Because PAYE is designed to work with people being paid regularly (eg monthly) it doesnt work well for one-off payments effectively treating your lump sum withdrawal as a typical month's pay. I dont know any way around it other than HMRC allocating a nil tax code (NT). You could ask them them but I dont think it is intended for this purpose- it would be too easy to mis-use it. The only thing I can suggest is to take the lump sum in March rather than April. This may (not if your tax code is "month 1") lead to only a minimal tax take, you having accumulated 11 (or perhaps it's 12) months worth of your allowance.

ianthy

Interesting I took my 25% tax free lump sum £233k and no tax was withheld by the provider - Old Mutual Wealth, at the time. At the time I was not working but drawing income down from my limited co.

Linton

ianthy wrote: »

Interesting I took my 25% tax free lump sum £233k and no tax was withheld by the provider - Old Mutual Wealth, at the time. At the time I was not working but drawing income down from my limited co.

The 25% tax free lump sums are fine. They dont need to go through PAYE. The OP is talking about tranches from the remaining 75% within his income tax allowance.

Dazed_and_confused

Interesting I took my 25% tax free lump sum £233k and no tax was withheld by the provider - Old Mutual

Why would you have thought they might deduct tax from a tax free lump sum?

Dazed_and_confused

Wooder

Your best option would be to see if your pension company would make the payment on an "annual" basis. If so they can give you the benefit of your tax code as though it was month 12 of the tax year. Info from HMRC booklet CWG2 states, for annual pay period,

When working out PAYE using Tax Tables A, if you’re using a code on a cumulative basis, use the table for month 12.

If you’re using a code on a week 1 or month 1 basis, use the table for month 12.

Obviously if they agree to do it and you receive additional taxable income during the remaining 11 months of the tax year you are at risk of having a having a tax underpayment.

Paul_Herring

One suggestion I heard (Money Box IIRC) was to make two withdrawals, the first the smallest sum permitted with the scheme to set the tax code for the year I think, and the second being the remainder of what you want to withdraw.

I can't speak to the veracity of that however...

Linton

Paul_Herring wrote: »

One suggestion I heard (Money Box IIRC) was to make two withdrawals, the first the smallest sum permitted with the scheme to set the tax code for the year I think, and the second being the remainder of what you want to withdraw.

I can't speak to the veracity of that however...

That's the solution to a different problem. When you make the first ever taxable withdrawal HMRC dont know you are "employed" by the pension company and therefore the pension company must use an emergency tax code that I think doesnt give you any tax allowance and may lead the tax system to assume you are going to be paid that amount every month putting you in the £100K+ band. So you lose a lot of the first payment in tax. After information about the first payment reaches HMRC they can issue a tax code. So putting through a minimal payment first gets a tax code allocated for the main payment.