Tax Code Question

caveman38

My wife having left work last year starts 21/22 unsure what her tax code will be when BBS interest is sent in.
SP £9,600, SIPP drawdown £2,400 and BBS int. £2,500. Collectively she shouldn't pay any tax, but. 
When HMRC add the BBSI and SP together they will leave a tax code of 57 that they will submit to her SIPP provider. That means that they will tax her SIPP. I assume that all taxes will be repaid in summer 2022 and so on.
Have I got that right and is there a way to prevent her paying tax unnecessarily. TBH I thought I worked it out well by limiting the SIPP to that figure to prevent tax forgetting BBS interest.

molerat

Is the SIPP amount showing correctly in her tax account ? Is the interest amount right ?

unholyangel

When you say drawdown, do you mean one off/lump sum drawdown? If so, it will be likely taxed on the emergency non-cumulative code. A code would only be issued if there were regular payments/the record wasn't ceased after each payment. 

[Deleted User]

The only source of income which could have tax deducted at source would be the drawdown, even if a ‘one-off’. I would suggest that 2400 of allowances be set against that income to prevent that and obviate the need for any repayment claim every year.

From the figures supplied there would appear to be scope to draw more than 2400 per annum but maybe that’s not the plan?

Dazed_and_C0nfused

When HMRC add the BBSI and SP together they will leave a tax code of 57 that they will submit to her SIPP provider. That means that they will tax her SIPP.

That not correct.

The interest is only deducted in her tax code if HMRC believe there are unused allowances which can be used by the interest.

If she has on ongoing pension, irrespective of how frequently payments are taken, she simply need to update her estimated pension (pay) figure on her personal tax account to ensure HMRC use the correct figures in any tax code.

One of the complications with pension freedoms is that people can pretty much do what they want with pension income and sadly HMRC are not mind readers!

caveman38

The code furnished to the SIPP provider was 240 which meant this months payment of £200 was free from tax. The figure given to SIPP provider I'm afraid will change because insufficient interest has been given for last year and when figures are sent in from BBS they will show a lot more interest was accrued.
However even the higher figure and the amount which will have to be paid back will still mean in total no tax for last year will have been paid and in theory nor should any be due for this either.
But knowing that the HMRC will add both SP and SIPP and I assume take them off personal allowance, then the figure given to SIPP provider will mean tax will be due each month even though the annually no tax should be paid. 
Because HMRC are unaware of what SIPP drawdown is being taken for 21/22 they have to furnish a figure of 57 I assume. I just want to know if HMRC can be informed of the very low amount taken from the SIPP so that a code can be given so that no tax will be taken.

Dazed_and_C0nfused

If you say what taxable income you expect your wife to take from the SIPP this tax year it should be possible to calculate the tax code now.

[Deleted User]

Dazed_and_C0nfused said:

If you say what taxable income you expect your wife to take from the SIPP this tax year it should be possible to calculate the tax code now.

Indeed! I can only reference what I said earlier.

caveman38

Dazed_and_C0nfused said:

If you say what taxable income you expect your wife to take from the SIPP this tax year it should be possible to calculate the tax code now.

Thanks. I wasn't aware that you can provide a figure of SIPP income on your personal tax account. Should you do it before the revised tax code is sent in the summer or now?

Dazed_and_C0nfused

If you do it now you will get a new tax code in a few days (assuming the current code has an interest deduction).

unholyangel

caveman38 said:

Dazed_and_C0nfused said:

If you say what taxable income you expect your wife to take from the SIPP this tax year it should be possible to calculate the tax code now.

Thanks. I wasn't aware that you can provide a figure of SIPP income on your personal tax account. Should you do it before the revised tax code is sent in the summer or now?

Is the sipp currently showing on your online account? Did you see my previous post querying how it will be withdrawn? 

If they are a current live source, you can update the estimated pay and it should result in the correct code being issued (not necessarily the right amount of tax being deducted though). If they are not a current live source then it's a bit more complicated. 

Also you query summer, why summer? Is it a lump sum drawdown that will be taken in summer?