Planning to take SIPP income - tax return needed .?

Joeygirl72

Good morning everyone

I have been searching for this answer - but not clear.
I plan to start taking income from SIPP next year - probably under the 12.5 k, so that’s fine.
But, the year after, I will be taking state pension & SIPP - no employment planned.

As the SIPP provider says they deduct the tax before I receive the income, will I need to complete a tax return ?

How have you all found this - what’s your experience, if you are at this stage...
Thanks in advance

Dazed_and_confused

Not usually if the two pensions will be your only income.

If your pension income is more than £50,000 and you are in a household receiving Child Benefit or your pension income is over £100,000 you would do.

HMRC will send the SIPP provider a tax code to take account of the State Pension so the tax deducted should be correct.

Are you under the impression the tax deducted would be the wrong amount?

bowlhead99

It works pretty much like when you are employed. HMRC will assign you a tax code which allows pension payers (just like employers giving you a wage) to deduct from your income at source - PAYE.

So the question is like saying, I plan to have a job next year where I earn under £12.5k so that's fine, but in other years I might also take a second job, the employers say that they deduct tax before I get the income, will I need to complete a tax return...

The answer is no, if your affairs are simple you won't need to do a tax return if you don't want to. If you end up paying more or less tax than you expect, you can tell HMRC by letter or other form and they will adjust your tax code or give you a refund.

Compared to regular salaried jobs, SIPP drawdown might be expected to have more problems with withholding the right amount at source, as many people do not draw the same amount each month.

For example in the first month of the tax year you might decide to take £5000 out of your pension. Even if the pension provider has the 'correct' tax code for you, based on the tax code and PAYE rules, they will need to assume: ok this person has £12500 annual personal allowance which is just over £1k a month before we get into basic and higher rate withholding... so we will let him have the first 'just over £1k' with no withholding, and we'll withhold on the rest this month. But then you don't take the same amount, or any amount, over the next eleven months and in essence you shouldn't have had anything withheld because the total income for the year was well under the £12500 personal allowance. But they only know how much you really end up taking, by the end of the tax year...

Whereas, if you had the same tax code and didn't do a drawdown until the 10th month of the tax year, the pension provider will think, ok this person can have just over £1k a month at the 0% rate of withholding before we get into basic and higher rate... and he's not had anything yet, and he's only got £5k of income by month ten, so cumulatively it's fine to only have £0 withheld.

I am simplifying to avoid the boring details as you're not there yet anyway, but hopefully you can get the idea. If you take lumpy withdrawals or you have a second income source start up during a year (eg state or other pension) the actual withholding might be thrown off from the correct numbers.

This doesn't mean you *need* to do a tax return, but you might like to because it is a relatively straightforward way of helping check you paid the right amount of tax. For example my dad does a tax return every year so he can tell them his income from multiple pensions, the bank interest income he earned, marriage allowance etc and the amounts deducted at source, and see if he had the right amount in total. It is usually over or under by a bit, which is caught up over the next tax year via tax code, or settled in cash.

Technically he doesn't need to do a return but he is into the habit of doing them and when you're retired you have all this spare time

TadleyBaggie

I have a final salary pension, a drawdown from a SIPP and the state pension. I just inform HMRC the various amounts and they adjust the relevant tax codes. I haven’t done self assessment for over 10 years.

xylophone

I have been searching for this answer - but not clear.
I plan to start taking income from SIPP next year - probably under the 12.5 k, so that’s fine.
But, the year after, I will be taking state pension & SIPP - no employment planned.

https://forums.moneysavingexpert.com/discussion/comment/74570792#Comment_74570792

Hi, I am in an NHS scheme too. (I am 45 with no dependants other than my husband) It is a great way to save. But I have a SIPP too

Did you mean 65?

Joeygirl72

Thanks for all your advice. This has made it much clearer for me. So much to think about. You just want to make sure you get it all straight before you ‘wade in’

Thanks again

Thrugelmir

Do different people post under your user name?