Pension lump sums

Gramski

I understand that you can take from your pension pot 25% tax free. What I am unclear about is how the remainder is taxed. Does it take into account your personal allowance? So if my income was less than my personal allowance of £11850, would the rest of my pension still be taxed?

NoMore

Subject to income tax and therefore the related allowances. So if your only source of income is the pension and you withdraw less than your allowance, then no tax to pay.

Dazed_and_confused

The rest is taxed in just the same way as taxable wages/salary would be.

Paul_Herring

Gramski wrote: »

So if my income was less than my personal allowance of £11850, would the rest of my pension still be taxed?

Only the bit that wasn't covered by the tax free allowance between your income and £11850.

lisyloo

Note the state pension is taxable, so it's 11,850 of your total income not just your private pension.

p00hsticks

NoMore wrote: »

Subject to income tax and therefore the related allowances. So if your only source of income is the pension and you withdraw less than your allowance, then no tax to pay.

Although note that if your pension provider does not have an up-to-date tax code for you (which can happen if it's the first time you've made a withdrawal) I believe they are legally obliged to deduct basic rate tax at the point of withdrawal and you'd have to claim it back from HMRC

squirrelpie

I believe they are legally obliged to deduct basic rate tax at the point of withdrawal and you'd have to claim it back from HMRC

Not quite. They apply a 'month 1' code basis; that is, they assume that your income from this source in this tax year will be twelve times whatever the payment is. Then they tax the payment at the appropriate rate for that yearly total. So if you took a single payment of say £4,000 even in March, you'd pay higher rate tax, although you could then claim it back.

FatherAbraham

Dazed_and_confused wrote: »

The rest is taxed in just the same way as taxable wages/salary would be.

Well, there no National Insurance to pay on income from a pension.

Dazed_and_confused

I agree, but the op did ask how the pension would be taxed, not what deductions might be taken from it.

mgdavid

Dazed_and_confused wrote: »

I agree, but the op did ask how the pension would be taxed, not what deductions might be taken from it.

Moot point; most regulars on here say that NI is a tax, and the Money Advice Service say it too.


https://www.moneyadviceservice.org.uk/en/articles/income-tax-and-national-insurance

'National Insurance contributions are a tax....'

kidmugsy

mgdavid wrote: »

Moot point; most regulars on here say that NI is a tax, and the Money Advice Service say it too.

And yet they are wrong. Unless you can think of a UK tax that, like NICS, buys you a specific "benefit" from the Treasury - equivalent, in other words, to the State Retirement Pension.