Can I empty a small pension pot?

Blackavar

I'm 64, retired with no expectation of income with various pension pots which I will take UFPLS amounts from until SP kicks in andwhen I will move pots to a SIPP.
I have an old work money purchase type pension worth about £12K.
Am I right in thinking that I can close this and withdraw all the money without paying tax? This would be helpful as the massive QA I have to go through getting UFPLS from current provider is quite onerous.
My taxable income is zero so this should surely be okay?
Thanks i advance for any input.

Brynsam

25% will be tax free and the remainder taxable at your marginal rate - and if you have no other income, £9K is well within the normal personal allowance, assuming that is your tax coding for the current tax year.

Blackavar

Thanks. I was assuming tax would be applied but then refunded as total amount of £12k is very close to personal allowance.

AnotherJoe

You do need to be careful, I'm sure I've read a post where someone who had similar got taxed very highly even though it was impossible for them to be taxed because they didn't have enough to pay tax. Eg in your case although it would be utterly stupid, they might give you a tax code as if you planned to take £12k a month.
It might be better to take out £1k so you get the right tax code assigned and then take out the rest once that's gone through.

Brynsam

Blackavar wrote: »

Thanks. I was assuming tax would be applied but then refunded as total amount of £12k is very close to personal allowance.

You might be taxed at the time you take it because of the way the tax system works, but the tax would be refunded pretty quickly. You'd simply need to apply to HMRC for a refund.

xylophone

with various pension pots which I will take UFPLS amounts from until SP kicks in and when I will move pots to a SIPP.

Had you thought of moving all the pots to a SIPP now?

Had you looked at HL whose administration of taking benefits flexibly is very good?

https://www.hl.co.uk/pensions/sipp

This would permit you to take a larger PCLS which you could use for income until it ran out and then consider your income options from the balance once SP commenced.

Have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

Linton

AnotherJoe wrote: »

You do need to be careful, I'm sure I've read a post where someone who had similar got taxed very highly even though it was impossible for them to be taxed because they didn't have enough to pay tax. Eg in your case although it would be utterly stupid, they might give you a tax code as if you planned to take £12k a month.
It might be better to take out £1k so you get the right tax code assigned and then take out the rest once that's gone through.

The reason is that pension payments are made under PAYE with the pension company considered as the employer. PAYE is great for regular payments such as wages but a bit clunky when it comes to one-off payments. What happens normally is that your tax allowance and tax bands are allocated pro rata month by month. So at one extreme if you take your lump sum in April you will only have 1/12 of your tax allowance and 1/12 of the tax bands. Hence you will be taxed as if you will be receivingthe same amunt of income every month for the full year.



If you only receive one-off payments from the particular employer HMRC can avoid this problem by giving you a T tax code when different rules apply. However HMRC cannot allocate you a taxcode until after the first ever payment from a new "employer" as they have no other way of knowing that you have started a new employment. Until a taxcode has been issued the employer must use an HMRC defined emergency tax code, currently 1185L where the first paragraph applies.

NorthernGeezer_2

How long does it take for HMRC to issue a tax code?
Does notification come direct to yourself from HMRC or your pension provider?

penwise

Does this mean that, for example in 2018/2019 , if you have no other income and you took a lump sum of 11k from your pension in March 2019 that the initial tax bill would be a lot less than it would have been if you had taken the lump sum in April 2018?

squirrelpie

Does this mean that, for example in 2018/2019 , if you have no other income and you took a lump sum of 11k from your pension in March 2019 that the initial tax bill would be a lot less than it would have been if you had taken the lump sum in April 2018?

No, sadly not, because this ...

So at one extreme if you take your lump sum in April you will only have 1/12 of your tax allowance and 1/12 of the tax bands. Hence you will be taxed as if you will be receiving the same amunt of income every month for the full year.

is wrong. It doesn't matter which month you take the payment in; it is always treated as if you are going to make another 11 payments in the same tax year, even if there are actually no more months in the year. It's called a 'month 1' basis. It's an amazing coincidence that this results in HMRC borrowing your money by claiming tax from you that it later repays. Not so much as a sorry, let alone any interest. In the normal world it would be criminal extortion, but in the kooky world of government, it's business as usual.

Best to pay yourself a small amount first, as stated. Then phone HMRC up and say you'd like the tax paid back and you'd like the pension provider issued with a tax code. It's all sweetness and light and happiness, because it's business as usual after all. Your tax pays the salaries of the people who answer the phone, and also the salaries of the programmers who write the crap software that rip you off so charmingly.

NorthernGeezer_2

So you dont automatically get a tax code when you withdraw from a pension, you have to request one?