Taxation on Lump sum decision

bill_fortan

Hello guys, I have a small private pension to be paid out early next year on my 65 birthday before I get my state pension 4 months and 4 days later (as they moved the goal posts away from getting this on my birthday).

I have decided to take the lump sum option, as the yearly pension which is under £1000 a year, is next to Useless. (would not even pay my council tax)

So when the figures came in yesterday for my option for to take lump sum, I found I was way down on what I expected due to tax,

The gross sum offered is reasonable, with some tax free and the rest payable of tax.
But tax quoted is emergency tax rate of 38% which i did not expect.

So is this right, can they just say emergency tax code is correct to get paid out?
Do I have to accept emergency tax rate as is, and that's it?
Can I try to claim back some of this tax from the local tax office later on, so they could check my tax code and repay me back?
can I argue the case with private pensions office, to get them to get personal tax rate for me.which is lower?

I am in a quandary now as I did not expect to pay so much taxation, as i will be losing thousands off the lump sum.

Any advice would be appreciated.

MallyGirl

The first withdrawal always gets hit with emergency tax code. Yoy will be able to claim back what has been overpaid. Contact HMRC

Silvertabby

It's normal to apply emergency tax when your pension provider doesn't have a tax allowance code to work with. You then claim back the over payment, if any, from HMRC.

Dazed_and_confused

The real amount of tax you will need to pay will be dependent on your total taxable income for the (tax) year.

You may be due some or all of the emergency tax back but you equally might owe more than was deducted by the pension company.

It all depends on your other taxable income (and what type of income it is, wages, pension, interest etc).

Without knowing that it's impossible to say what, if any, tax you might get back.

Mnd

I have withdrawn money from my personal pension twice this year, been taxed when none was due. I just filled in a P55 form and had the cash back in a couple of weeks

Paul_Herring

They don't know how to tax it since they don't have a current tax code, so they use a tax code that treats your one-off withdrawal as if it was going to be withdrawn every month for the rest of the tax year.

You can claim it back, but the exact path you need depends on your circumstances. See the flow chart under 'Tax repayment forms at https://adviser.royallondon.com/technical-central/pensions/benefit-options/emergency-tax-and-lump-sum-withdrawals/ for example.

https://www.moneywise.co.uk/news/2018-04-10/beware-emergency-tax-codes-pension-withdrawals is a more 'customer' orientated explanation of the underlying causes.

bill_fortan

Mnd wrote: »

I have withdrawn money from my personal pension twice this year, been taxed when none was due. I just filled in a P55 form and had the cash back in a couple of weeks

Thanks to all that replied so quickly, and I will use that P55 form to claim back the tax, may as well get some of it back.

We all pay enough tax as it is.

badmemory

Do you have another pension or other earnings in payment already? If so HMRC may not refund you but may give a new code to your other source of income. If they do that you will get your refund from that other source, but please ensure that if that is what they do that the other source of income actually applies the code & the income (your pension amount) & the tax paid correctly. If your other income is from reassure they do not do it correctly.

xylophone

You mention that expect to take the pension early next year - will that be in the current tax year and if so, will you have other income in this tax year over and above the 75% of the pension which is taxable as income?

Terry_Towelling

Take care and do some sums. If you take your pension before 6th April 2019 then (apart from the 25% that is tax free) the rest of the pension payment will be added to your other income for this tax year in order to calculate your total tax liability for this year. A couple of other posters have already hit on this point too.

So, if you will have received a salary of, say, £45K this tax year, the 75% taxable portion of your pension could put you into the 40% tax bracket for the year.

You haven't said what your earnings are this tax year but it may be as well to wait until after 6th April before you start to take your pension (if you can manage that) so that you can start to 'fill up' next years £12K personal allowance rather than adding to this years amount which is probably already in excess of the current £11850 personal allowance.