How does UFPLS work with a tax code

Notepad_Phil

A simple question I hope.

Mrs Notepad is about to take her second UFPLS from her Fidelity pension (but the first in this tax-year) and after going onto the government tax portal has found that her tax code for her pension is set as 1131N. I think that means that if you ignore the 25% tax-free part of the UFPLS, then provided the 75% taxable part is less than or equal to £11,310 then it should be paid tax-free, but I just wanted to check that was correct.

Many thanks,

Dazed_and_C0nfused

You are sort of correct.

But the £11,319 tax code allowances accumulate over the tax year, one twelfth per month, so it will depend on how Fidelity operate PAYE.

If it is an annual payment then they can definitely calculate the tax as though it was the last month of the tax year i.e. no tax on the first £11,319.

If paid monthly they may deduct tax on anything above £943.

TVAS

I worked for Fidelity I did Flexi Access Drawdown, UFPLS and Small Pot payments.

The amount you take will be treated as if you will receive the same amount each month. This is how HMRC have instructed drawdown providers to treat payment.

This is where taking an ad hoc once a year  income payment in Month 12 March is better than Month 1 April.

Say Mrs Notepad wants to take £11,310 in March it will be paid tax free because she has 12/12ths of her annual personal allowance £11,310 accumulated to Month 12 March.

If she take it in Month 2 May she only has 2/12ths of each threshold so 2 x 11,310/12 =  1885 then 2 x 20% tax rate band 50271-11310= 38,961/12 x 2 = 6,493.50 and so on for 40%.

She will get overpaid tax returned however there will be a delay which is why Month 12 is always better than any other Month even if you take income above the personal tax allowance because you have 12/12ths of each tax band allowance to utilise.

If you retire and have no other income or just receive your state pension, use form P50.

If you take all your money out of your pension pot and you have no other income, use form P50Z.

If you take all your money out of your pension pot and have other PAYE income, use form P53Z. Note that if you have taken a pension lump sum under the ‘small pots’ rules, form P53 is required, which is different to the P53Z.

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.   

Notepad_Phil

Many thanks for the replies. I had thought (based on various articles I'd read in the past) that if they had a tax code then the pension companies would tax the UFPLS as if it was being paid in month 12. This was because those articles had said that the way to get around emergency tax was to take a small lump sum first, wait for the tax code to be sent, and then take the big lump sum. Which is I suppose correct, it's just that they never mentioned that you had to take the big lump sum towards, or even at the end of the year, otherwise you would still end up paying a lot of additional tax that you then needed to reclaim.

Costabit

TVAS said:

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.   

@TVAS
I know that you advocate taking any payment in March to use 12/12ths of the tax allowance and can see the point in that.
But what if you don't want to wait until next Mar.
In your experience , how long do HMRC take to reimburse someone using form P55 ?

molerat

Pre covid an on line refund application used to take a few weeks, not done one lately though.

How much does she want to withdraw ? 

With an 1131 code she can safely take £1257.68 per month or x multiple months without any tax deducted with up to £15092.16 in M12.

Scrudgy

In your experience , how long do HMRC take to reimburse someone using form P55 ?

Last year the tax refund was in my wife’s bank account 9 days after submitting the online P55

Thrugelmir

Notepad_Phil said:

Many thanks for the replies. I had thought (based on various articles I'd read in the past) that if they had a tax code then the pension companies would tax the UFPLS as if it was being paid in month 12. 

The pension company will operate a standard payroll system, that will reflect the 12 monthly pay periods in the tax year. The pension company has no idea if you will make further withdrawls during the tax year. 

agent69

TVAS said:

I worked for Fidelity I did Flexi Access Drawdown, UFPLS and Small Pot payments.

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.   

I'm in the process of trying to reclaim a refund for last year, and find the whole online process confusing.

I started filling in P55, but when it starts talking about 'will you receive further payments before the end of the tax year' what does it mean. The current tax year (which is irrelevant to last years refund claim), or the last tax year (which I obviously can't receive further payment for). Also it asks for details of pension payments you will receive this year. Again this is irrelevant for last years refund, but additionally:

• I expect to start receiving a DB pension in November, but don't know how much or who will pay it

• I will probably take money from my SIPP this year but have no idea how much

Web chat is constantly engaged and I hung up after 45 minutes waiting on the phone. The whole thing is a fiasco given that I was taxed about £2,200 on a SIPP withdrawl that I made in March, even though my total taxable income was less than the tax free allowance.

Thrugelmir

agent69 said:

TVAS said:

I worked for Fidelity I did Flexi Access Drawdown, UFPLS and Small Pot payments.

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.   

I'm in the process of trying to reclaim a refund for last year, and find the whole online process confusing.

I started filling in P55, but when it starts talking about 'will you receive further payments before the end of the tax year' what does it mean.

As the tax year ended the 5th April 2021 has passed. Then your taxable income is known. Any payments made now will be in the 2021/22 tax year. 

agent69

Thrugelmir said:

agent69 said:

TVAS said:

I worked for Fidelity I did Flexi Access Drawdown, UFPLS and Small Pot payments.

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.   

I'm in the process of trying to reclaim a refund for last year, and find the whole online process confusing.

I started filling in P55, but when it starts talking about 'will you receive further payments before the end of the tax year' what does it mean.

As the tax year ended the 5th April 2021 has passed. Then your taxable income is known. Any payments made now will be in the 2021/22 tax year. 

But if I am claiming a refund for last year, what is the point of asking me what my income for this year will be?