Pension advice please

TheDax

HI Guys
I have a pension pot of approx 27,000 I am disabled yet not quite 55 I am on PIP and contribution ESA support I wont ever be able to work again sadly and I am applying to take the pension pot as I am in desperate need to make modifications to my home or even drastically move to another property that has the adaptions I require.
My question is it possible to take the pension without getting stung twice for TAX as the way I see it I will get taxed on the 20,250 (after tax free sum) of 4,050 and then again as income when it is added to the 5759 (from ESA) 26009 taking a total of 9251 off of my pension pot, or have I got this completely wrong (hopefully). Are there any other recommendations please thank you in advance and sorry if I sound a bit thick but this is a minefield especially if I have to move as I would have an equity of around 50k not enough to buy the property I need. HELP...

p00hsticks

Contributions based ESA is a taxable benefit (PIP isn't).

Once you've taken your tax free lump sum from your pension, any additonal money you take out above (your tax personal allowance minus your ESA income) will be taxed.

So if £5759 is your annual ESA income. and you have the standard tax allowance of £11,500, you can take out your tax free lump sum of of £6750 and another £5741 from your pension without being liable for any tax (although note that your pension provider may initially deduct tax and you have to reclaim it). Anything over £5741 taken out this tax year will be taxed at 20%.

When the new tax year starts you could take another chunk out up to your tax allowance.

molerat

You will only get taxed once on the pension payment as it is simply counted as part of your taxable income for the year. It may be initially taxed incorrectly, either under or over, but that will be corrected either during the year or in April.

xylophone

You will be 55 in the tax year 2019/20?


The pension is approx £27000.

The tax free PCLS is 25% of £27000 which is £6750.


The balance is taxable as income in the year of receipt.

If your total taxable income is £26,000, then you have your tax free personal allowance of £12500 with the rest taxable at 20%.

The tax due for the year 19/20 would be £2700 but you may well find that you are overtaxed initially.

See also below concerning whether the pension is regarded as income or capital - contact DWP.

https://www.gov.uk/government/publications/pension-freedoms-and-dwp-benefits/pension-freedoms-and-dwp-benefits

Linton

With a £27000 pension 25% is (£6750) is tax free. The remainder is taxed as income alongside any other taxable income you may have. If you have £5759 taxable ESA your total taxable income is around £26000. This year with a £11850 tax allowance the tax would amount to about £2830.


The tax is taken on the pension under PAYE against a tax code in the same way as earnings from employment. However it is likely that this will operate incorrectly as the first drawdown will be made with an emergency tax code rather than one set up for your particular circumstances. It will all be sorted after the end of the tax year, or you may be able to claim a tax refund (if one is due) before then.


You could reduce your total tax by splitting the taxable drawdown over two tax years. In this case you would pay a total of about £1700 in tax.


My tax calculations are approximate.

drumtochty

Your calc of 25% of your pension pot of £27,000 seems incorrect.


Tax Free £6,750
Taxable £20,250.


Please stop making up facts that you are taxed twice on earnings.


If you put your pension pot into flexible drawdown you can withdraw £11,550 this year less the £5,759 you quote from ESA. That amounts to approx £5,791 free of income tax plus the original tax free amount of £6,750 from the pension £12,541.


After April 6th you can then withdraw the remaining £14,491 plus ESA of say £6,000 on which you would pay around £1,600 income tax. Unless you can get a loan of say £8,000 repayable in April 2021 in that case you can again withdraw the remaing SIPP balance within your personal allowance or near enough.


Any tax that is paid via the pension provider is reported on you tax return and any over payment is returned to you.


I suggest you contact one of the disability support groups to assist with looking at ways to provide assistance to help part finance the home modifications until you can get the funds tax free via your pension.

Marcon

drumtochty wrote: »

Please stop making up facts that you are taxed twice on earnings.

How rude. OP is clearly not sure of their ground and is asking for help, not 'making up facts'. Such as abrasive response could well stop someone else asking for clarification. Maybe a little more empathy with those who don't have your vastly superior knowledge...?

Brian65

If you receive contribution-based ESA and have a gross pension income of more than £85 a week, the amount of benefit payable will be reduced by half of the excess.
https://www.nidirect.gov.uk/articles/employment-and-support-allowance

PS: Just looked a bit further and found that if you take one lump sum it will be counted as capital and not income.
https://forums.moneysavingexpert.com/discussion/5952470/interview-with-dwp-compliance-officer
And since your pension won't produce an income over £85 a week it won't affect your ESA whatever you do. But the increase in capital might take you over the threshold for housing benefit?

TheDax

Thanks all that's much clearer and I don't get Housing Benefit not too much of a worry.
I was a bit taken aback by the "making up facts" comment but some people just cant help themselves.
I do really appreciate all the help thanks again might sleep easier now.