Mechanics of taking 25% tax free

Dazed_and_confused

The first taxable payment will be taxed on a non cumulative week1/month1 basis however the emergency tax code, currently 1185L, means that tax will only be deducted if the payment is more than £988.

This assumes the pension company operates a monthly payroll system which most seem to do going off the threads on here.

p00hsticks

NorthernGeezer wrote: »

Would i be right in assuming a way around this is to divide the £10950 by the remaining months left in the tax year?

Another way would be to complete a P50 to reclaim the overpaid tax back - I've not tried it myself but I've heard that it is processed within a few weeks.

https://www.gov.uk/government/publications/income-tax-claiming-tax-back-when-you-have-stopped-working-p50

NorthernGeezer_2

My thoughts at the moment is to take the £988 a month and then in March19, the 12th tax month, take the balance of the £11850 (£4940) as a lump sum. I'm assuming that as its the last month of the tax year i wont be penalised for this in the following tax year.
My plan was always to access my pension without paying any tax so the easiest way forward in the future would be to take a twelth of my tax allowance on a monthly basis i think.

NoMore

For me, personally, although its annoying the way HMRC collect tax on pension Drawdown, I'm not going to change amounts that I want just to try and game the system to avoid them taxing it.

At the end of the day, you just claim the tax back that HMRC owe you.

NorthernGeezer_2

What happens after HMRC issue the pension provider with an emergency tax code, do they then issue a proper tax code for future withdrawals?

Dazed_and_confused

HMRC don't issue the pension provider with an emergency tax code.

The whole point is HMRC don't know about the pension until the pension provider sends them details of the first payment.

Once that has been done HMRC should review your situation and send the pension provider a new tax code applicable to your circumstances. That may often be exactly the same as the emergency tax code, currently 1185L, but they will be telling the pension provider to use it on a cumulative basis rather than the non cumulative basis the pension provider would have used for the first payment.

NorthernGeezer_2

I'm assuming then that if your first withdrawal is say £988, your tax coding will be 1185L with no tax to pay.
I'm also assuming that if you withdraw this amount on a monthly basis the pension provider will tax accordingly, meaning no tax to pay
I'm again assuming that if you take a lump sum of say £10k, the pension provider will tax accordingly and you will have to claim it back.

gonedownthepub

p00hsticks wrote: »

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)

My £90k SIPP is currently cash so when I take my 25% tax free there will be £67.5k left which I will invest over a period of months.
If I add then invest say £7k fresh cash over the next 12 months this will mean my total investment will be £74.5k.
So if in 3 years time the investment value is say £76k and I look to take another 25% tax free how do AJ bell know what the new £7k pot is worth as the investment value is mixed with my original £67.5k or is there a separate SIPP Acount set up for fresh funds added?

AnotherJoe

I don't know how ajb handle this, but with Hargreaves lansdown, when I did it, they move the 75% into another new SIPP they create named "drawdown SIPP". New money you put in later, and any investment gains (or losses) from that, goes into the original SIPP.