Tax on pension withdrawal

Andrew1963

Hi, apologies if this is posted in the wrong section. I have recently taken my pension early and transferred it to a flexible drawdown fund. Last tax year I had to take a large amount on top of my tax free lump sum and was subsequently charged tax at the higher rate on part of it, which is fair enough. I now need to take a a further £5000, but seeing as we are now into a new tax year, and as I’m self employed and obviously won’t be doing my tax return until next year, will I get taxed on this amount at source now at the nominal rate, or will the tax be calculated at the time I do my tax return for 2019? Thank you.

SeniorSam

You need to get the tax office to notify your pension provider of your tax code. Without that the pension company may deduct emergency tax. I had a similar problem recently and the pension company would only accept notification from the company. Suggest you give the tax office a call and explain. Mine did it in a few days, so =were very helpful.
Sam

Andrew1963

Thanks Sam. They have my code, so all up to date on that score. The question is will it be taxed at source, or as it’s below the threshold, will it be untaxed until I submit my return next year?

Dazed_and_confused

It will be taxed based on the tax code sent to the pension company.

Are you able to say what that is?

Probably the emergency code of 1250L but issued on a cumulative basis.

And any adjustment (extra to pay or refund due to you) will come out in the wash when you complete your 2019:20 Self Assessment return.

Andrew1963

Hi Dazed and confused,

My tax code is 1185L and the Pension provider has that. How would the cumulative tax basis work with this being the start of a new tax year? I’ve paid all the tax owed from the last tax year.

Dazed_and_confused

Providing they haven't been notified of something different the pension company should automatically upgrade your tax code to 1250L for the 2019:20 tax year (Google HMRC P9X).

But I think if you then take a pension payment in April, month 1 of the tax year it will be taxed on the basis that you will be getting £60k/year i.e. part will be tax free (1/12th of £12,509) part taxed at 20% and a little taxed at 40%.

Taking £5,000 in month 5 of the tax year should result in no tax being deducted (5/12th of £12,509 being more than £5,000).

That is unless the pension company can pay this as an annual payment but you'd have to ask them if that is possible.

xylophone

My tax code is 1185L

This was standard PA for 2018/19.

Assuming that you will be on 1250L for 19/20, I'd expect that the pension provider would pay 1/12 x 12500 tax free and tax the balance at 20% - you'd have to reclaim the overpayment.

https://www.litrg.org.uk/tax-guides/pensioners/what-tax-position-when-i-take-money-my-pension-flexibly

If you take only part of your money out of a pension pot, and you will not take another cash payment from the pension pot before the end of the tax year, you can claim a tax refund (if appropriate) using form P55.