How to avoid 40%tax

BJL55

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?

MallyGirl

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

Dox

How much will your first monthly drawdown be?

BJL55

Dox wrote: »

How much will your first monthly drawdown be?

£3K per month

Mutton_Geoff

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.

Brynsam

Mutton_Geoff wrote: »

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

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

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 :-)