Mechanics of taking 25% tax free

gonedownthepub

Good Afternoon All
I have £90K in my AJBell SIPP and would like to take the 25% tax free element later this year when I reach 55 (please no questions/responses as to why I am taking the lump sum and not leaving it invested).
There are some forms to fill in which allow me to proceed.
How does the provider deal with HMRC, do they say that the £22.5 k is my tax free element and the rest is left invested?

NoMore

Explained here:
https://www.youinvest.co.uk/pensions-and-retirement/accessing-your-pension/tax-free-cash

Form to fill in:
https://www.youinvest.co.uk/sites/default/files/useful-forms/AJBYI_SIPP_benefit_form-income_drawdown_and_lump_sum_payments.pdf

They will inform HRMC of the payment, you effectively get a pay slip.

dunstonh

There are some forms to fill in which allow me to proceed.

Forms? How very 1990s.

How does the provider deal with HMRC, do they say that the £22.5 k is my tax free element and the rest is left invested?

Not your worry. As you want to crystallise 100% of the fund, the provider just crystallises 100% of the fund as you have instructed them. HMRC are not involved as you are not taking any of the 75%.

AnotherJoe

In essence, yep except they don't tell HMRC since it's tax free, they just keep track of it themselves and tell HMRC once you take a penny or more from the remainder.

gonedownthepub

Ok thanks all
Sounds simpler than I thought

gonedownthepub

I assume I can still contribute my full allowance after taking the 25%
Yes I know the recycling rules but this will be fresh monies at a much later stage.

AnotherJoe

gonedownthepub wrote: »

I assume I can still contribute my full allowance after taking the 25%
Yes I know the recycling rules but this will be fresh monies at a much later stage.

Yep. But take 1p out of the rest and then you can't put more than £4K a year in after that.

p00hsticks

gonedownthepub wrote: »

I assume I can still contribute my full allowance after taking the 25%
Yes I know the recycling rules but this will be fresh monies at a much later stage.

Your existing pot will be redesignated as crystallised drawdown pot, and any new contributions will go into a separate new pot (as you still have the potential to get 25% of the new pot tax free)

NorthernGeezer_2

Had an interesting conversation with Fidelity today over this subject.
I'm in the process of taking my tax tree 25% from a similar size pot as the OP.
OK, no issues with that, fill in a form and bobs yer uncle, the moneys yours ,

I'm also looking to access an additional amount up to my tax threshold (£11850) and as long as i don't go above this figure, i expect no tax to be due.
To receive a tax coding i'll initially withdraw £900 however, Fidelity have informed me that when i withdraw the balance, £10950, HMRC will tax me accordingly, they will assume that my intention is to withdraw this amount every month
Would i be right in assuming a way around this is to divide the £10950 by the remaining months left in the tax year?

AnotherJoe

Id say nearly, but keep it under £958/month (not sure how many months will be in the tax year by the time you've done this)

squirrelpie

I don't think that is quite right. If you take out a small amount initially, it will be taxed on a month-1 basis, which means they will tax it assuming that you are going to do the same thing every month and also they will pretend it is April. i.e. worst possible case. But after that withdrawal they will assign a tax code to the pension provider and if you then phone HMRC and explain what you intend to do, they should adjust the tax code so it works properly. They did for me, anyway.