how much tax will i pay

worried123

I wonder if anybody could answer my question please.....I have an old tiny pension pot sitting there doing nothing and i want to withdraw the cash from it..its tiny...just £3,200 (i am currently paying into another pension with work).  My wages are normally quite modest at around 28,000.  however my work load and etc has changed from last month and my income is a bit higher, which may be temporary,  but still falling into the lowest tax bracket.  If i add that 3.200 pension to my net wage it will be around £6,400 (i know that 800 of the pension cash withdrawal will be tax free) but would i be subject to a higher rate of tax on the whole amount of wage and pension withdrawal for that month...bearing in mind that i normally only earn around 28 k annually and this has only increased a month ago and for the next few months.  I am just hoping that i dont have to pay 40% - with the 800 tax free it will be a net income of £5,600.  I know that over 50k a year takes you into the 40% bracket but i dont earn that annually.

many thanks

worried123

sorry - it will be a net income of 5,600 for that month only....also i am over 55 and free to withdraw it.

garmeg

As it is under £10k you can take it as a small pot. The first 25% will be tax free and the rest will be taxed at 20% / basic rate. This is how small pots are taxed - with a BR code. Any underpayment of tax would come through in your tax return but as you dont earn anywhere near £50k (£46k in Scotland) it is not going to be an issue for you,

The tax deducted would be 20% of £2,400 ie £480 leaving you with £2,720 net.

As you are taking a small pot, the reduced money purchase annual allowance of £4,000 would not apply and you can pay in to your current pension, if any, subject to the usual maximum of £40,000 (and your earnings of course).

worried123

many thanks indeed.

worried123

so sorry...can i just ask.  Having spoken to pension provider...it is a small amount of 4k - a bit more than i thought...my worry is....i know that the first 25% s tax free....but my wage for the month it will hit my pay - its a workplace small pension - goes in your pay with your wage for that month....will be 3,400 - so that is 7,400 going into my pay gross......I normally earn around 28k a year but my work has changed this month and going forward to 34k a year.  I am worried they will take more than the basic 20% on that 7,400 hitting my pay gross  (which is obviously a one off).......i am worried and bit unsure.  I will not earn the 50k which takes you into the 40% bracket but concerned with so much hitting my pay with that pension payment in it.  Would i still only pay the basic 20% on all of that please.  i hope that makes sense.

Many thanks

kangoora

It won't be paid as part of your wage.

It is a completely separate payment and will be taxed as described above.

Nothing to do with your salary at all......

worried123

thank you...it will however be paid with my wage.....i did cash in some years back and the 25% went into my bank account straight from pension provider and the remaining amount came down on my wage payment and was taxed accordingly alongside my wage....it is an auto enrollment pension with work......we now have a new provider and i decided to leave this where it was and now cash in...

kangoora

OK, i take your point but it seems strange to me that your pension would get paid (and included) with your wages. Maybe someone else will come along who is more familiar with this.

MallyGirl

probably best to call the old provider and ask

molerat

Is this pension from the same employer you are currently with ?  If so and the employer generally payrolls pension payments this can be paid through normal payroll and not as a stand alone payment. It will be taxed accordingly as would any other large payment.  Although a larger tax amount will be taken if the total income for the month is above £4166 any overpaid tax will be refunded into your pay in the months going forward.  If not then it will be taxed at BR and if your total income for the year including this payment does not exceed £50K then no more tax will be due.

worried123

yes, its my current employer.  however, they are now using a new pension provider from the month of september - and this is a tiny amount in an old pension provider with teh company that i left there and didnt transfer over to the new provider...so its just sitting there...i wonder whether, as my company are no longer using scottish widows from beginning of September but a new provider...maybe scottish widows will pay me themselves rather than it being put into my pay. (the chap i spoke to on the phone did ask is this an old work related pension)  If it does go through payroll and goes into my pay it will be over 7,000 gross - which is a real one off for me to receive that much....and i just didnt want to end up paying 40% on it all.

Do you think perhaps because my company are now using a new auto enrol pension provider from September, this pension payment might be paid separately to me...we get paid on 5th of each month and i am referring to the pay for october 5th.

many thanks...sorry for being so naive about it all....thank you.