Tax, What a Palaver!

[Deleted User]

Pension_Geek wrote: »

I suspect that HMRC would prefer to tax upfront rather than billing people months later when the tax year is over. There is no difference between drawdown and employed income in that respect, its just that its possible for people to draw their entire income in one go.

As much as you 'explained' your tax situation, the pension provider has to act in accordance with the rules.

No. My main pension provider got it right and didn't shovel a load of my cash off to HMRC only for me to claim it back (25% lump sum payment taken). It was only when I approached the pension administrator of a previous employer to take a cash lump sum in exactly the same manner (different tax year) from a deferred DC scheme, did they feel obliged to lend HMRC my money. The pension administrator here was the notoriously bad Willis Towers Watson.

Pension_Geek

johnsmith1890 wrote: »

No. My main pension provider got it right and didn't shovel a load of my cash off to HMRC only for me to claim it back (25% lump sum payment taken). It was only when I approached the pension administrator of a previous employer to take a cash lump sum in exactly the same manner (different tax year) from a deferred DC scheme, did they feel obliged to lend HMRC my money. The pension administrator here was the notoriously bad Willis Towers Watson.

If its PCLS, no tax should be paid. If not, then its taxable, and depending on when you took the income tax might be more than you expected.

People having more than source of income, or the freedom to take multiple withdrawals is the reason the tax is taken upfront.

BoGoF

johnsmith1890 wrote: »

I had the same issue with a lump sum withdrawal. Despite my best efforts in explaining the situation to my pension administrator the taxman got a big chunk of my money and I had to fill out the P55 to get it back. I recall that some committee of MPs has complained to HMRC about how they handle these issues. The way they do it is unnecessary, potentially confusing, and of course inefficient. Nonetheless, HMRC stated that they won't change anything. In their view the whole process is "straightforward" or words to that effect. I suppose such a response is only to be expected from the HMRC bottom feeders.

If MP's were that concerned they could change the legislation by which HMRC abides.

[Deleted User]

Pension_Geek wrote: »

If its PCLS, no tax should be paid. If not, then its taxable, and depending on when you took the income tax might be more than you expected.

People having more than source of income, or the freedom to take multiple withdrawals is the reason the tax is taken upfront.

Correct, but that's only part of the story. For me, it was a PCLS handled by Charles Stanley and they provided detail on how to avoid paying the unnecessary tax; all went well. Second time around, with Willis Towers Watson, they just consider all lump sums should be taxed on a Week 1/Month 1 basis. They confirmed this to me when I complained.

[Deleted User]

BoGoF wrote: »

If MP's were that concerned they could change the legislation by which HMRC abides.

It was a committee of MPs - the one relevant to HMRC - making recommendations. Not sure whether detail such as this would be handled by explicit legislation, but maybe.

GSP

Thanks Johnsmith1890. P55 it is then.

xylophone

It was only when I approached the pension administrator of a previous employer to take a cash lump sum in exactly the same manner (different tax year) from a deferred DC scheme, did they feel obliged to lend HMRC my money. The pension administrator here was the notoriously bad Willis Towers Watson.

You had never accessed this pension before?

Was there a reason why you did not take the PCLS and the balance as income?

Or were you using UFPLS?

And see

https://adviser.royallondon.com/technical-central/pensions/benefit-options/emergency-tax-and-lump-sum-withdrawals/

Pension_Geek

As put by Xylophone, there is more to this than meets the eye. I cannot believe a company would knowingly tax PCLS.

I can imagine the flip side if HMRC just allowed people to take lump sums and sort out the tax later. 'HMRC gave me a bill I didn't know i had after I took MY pension money'.

[Deleted User]

xylophone wrote: »

You had never accessed this pension before?

Was there a reason why you did not take the PCLS and the balance as income?

Or were you using UFPLS?

And see

https://adviser.royallondon.com/technical-central/pensions/benefit-options/emergency-tax-and-lump-sum-withdrawals/

No, never accessed it. It's a deferred pension with a DB and DC component. The DC component was only worth about £12k so it made sense to take it as a lump sum. I was entitled to 25% tax free as a PCLS. I furnished WTW with my up-to-date tax code and P45 (per the link you provided - thanks for that) but they still operated on a W1/M1 basis. Could they have done otherwise? I assume they could, but what's your take on it?

Pension_Geek

johnsmith1890 wrote: »

No, never accessed it. It's a deferred pension with a DB and DC component. The DC component was only worth about £12k so it made sense to take it as a lump sum. I was entitled to 25% tax free as a PCLS. I furnished WTW with my up-to-date tax code and P45 (per the link you provided - thanks for that) but they still operated on a W1/M1 basis. Could they have done otherwise? I assume they could, but what's your take on it?

For that type of payment, the guidance is that it should be taxed month 1.