Interactive Investor SIPP drawdown and income tax

bthomp88

Hello,

Does anyone have an ii SIPP in drawdown and know what income tax ii withhold?

My intention is to drawdown up to my personal allowance of £12,500 and do not want tax unnecessarly withheld, that I then have to claim it back.

I have heard that it is best to drawdown £1000 first to avoid an emergency tax code being applied. Then to wait until ii have my personal tax code, which they have.

So my question is how should I drawdown the remaining £11,500 to avoid tax being withheld. I would prefer to take it as one drawdown during August.

I have asked ii this question a number of times, I do not think they understand the question.

Thanks for any help

squirrelpie

You have already made a £1,000 withdrawal?

Assuming so, then if ii have now been given a tax code for you, then HMRC should also have sent you a copy of it. If not, you need to find out why not. If they have then it tells you how any future payments will be taxed. If you post the number here, somebody can explain it if you do not understand.

But if you have no other income then it makes no difference how you take it, so a single payment in August is fine.

PS Tax is not 'withheld' by the pension provider; whatever it is, it is paid to HMRC as required by the rules.

Linton

Exactly how the tax is treated depends on the tax code which has been allocated.  Perhaps if you can let us know that we can explain what happens.

It is quite possible that squirrelpipe is wrong and that taking all the money in August will incur a tax charge which will need to be reclaimed.  The normal way PAYE works is that 1/12 of your tax allowances and tax bands are allocated to each month with unused allowance being added to the following months allocation.  August is the 5th month in the tax year and so if you take a lump sum at that time you will only have 5/12th of your annual allowance available.  This being the case, the best time to take a single lump sum using all your tax allowance would be in March,  the 12th month of the tax year.  However different tax codes can have different effects.

bthomp88

Thank you for the responses. My tax code is 120L. The way Linton has explained it: 1/12th of my allowance being applied each month, with any unused being carried forward makes sense.

I can now plan my drawdowns minimising the tax that I would need to reclaim.

Many thanks.