📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!

How to avoid 40%tax

I’m about to take early retirement and start taking a monthly drawdown.

I’m currently employed with a salary in the 41% tax band (I’m in Scotland); earning to date plus monthly drawdown will not exceed £43K in current financial year.

My question is, will HMRC continue to tax me at 41% when I start to take drawdown ? if so what can I do to stop them in the current financial year or will I have to wait till next April to make a claim?

Comments

  • MallyGirl
    MallyGirl Posts: 7,179 Senior Ambassador
    Part of the Furniture 1,000 Posts Photogenic Name Dropper
    I am sure that you can write to them and notify of your change of circumstances. The first drawdown usually gets hit with emergency tax and then you can get it all sorted properly
    I’m a Senior Forum Ambassador and I support the Forum Team on the Pensions, Annuities & Retirement Planning, Loans
    & Credit Cards boards. If you need any help on these boards, do let me know. Please note that Ambassadors are not moderators. Any posts you spot in breach of the Forum Rules should be reported via the report button, or by emailing forumteam@moneysavingexpert.com.
    All views are my own and not the official line of MoneySavingExpert.
  • Dox
    Dox Posts: 3,116 Forumite
    1,000 Posts Third Anniversary Name Dropper
    How much will your first monthly drawdown be?
  • BJL55
    BJL55 Posts: 34 Forumite
    Sixth Anniversary 10 Posts Combo Breaker
    Dox wrote: »
    How much will your first monthly drawdown be?


    £3K per month
  • Mutton_Geoff
    Mutton_Geoff Posts: 4,015 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Photogenic
    I’m sure you can just send your pension provider your tax code and if you have no other source of income, taxation at the correct rate will be automatic.
    Signature on holiday for two weeks
  • Brynsam
    Brynsam Posts: 3,643 Forumite
    Fifth Anniversary 1,000 Posts Name Dropper Combo Breaker
    I’m sure you can just send your pension provider your tax code and if you have no other source of income, taxation at the correct rate will be automatic.

    No - the pension provider must apply an emergency code until they get direct notification from HMRC of the code to apply.

    OP - given the relatively modest amount of drawdown each month, the tax position should sort itself out within a month or two, when your pension provider gets the code from HMRC.
  • jamesd
    jamesd Posts: 26,103 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    The first payment will use the emergency code. Once you have that payment, tell HMRC your total work gross for the tax year and the total gross you'll be taking from the pension and they will issue a new code that should correct the overpayment. No point in contacting HMRC until after the first payment because they won't have a PAYE record for the pension payments before that.

    If you have other income or gains that would affect your income, tell HMRC about that as well.

    It'll be sorted out but maybe more slowly if you do nothing.
  • BJL55
    BJL55 Posts: 34 Forumite
    Sixth Anniversary 10 Posts Combo Breaker
    Update:


    My IFA has recommended I use some of my TFLS (that leads to a seperate question) for the rest of this financial year which means I can now reclaim most of this years overpaid tax which can be done online (or post) via form P50.


    Thanks for all who took the time and effort to leave replies :-)
This discussion has been closed.
Meet your Ambassadors

🚀 Getting Started

Hi new member!

Our Getting Started Guide will help you get the most out of the Forum

Categories

  • All Categories
  • 350.4K Banking & Borrowing
  • 252.9K Reduce Debt & Boost Income
  • 453.3K Spending & Discounts
  • 243.4K Work, Benefits & Business
  • 598K Mortgages, Homes & Bills
  • 176.6K Life & Family
  • 256.5K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 16.1K Discuss & Feedback
  • 37.6K Read-Only Boards

Is this how you want to be seen?

We see you are using a default avatar. It takes only a few seconds to pick a picture.