Tax

ashleyjwh

I have already taken 25% tax free of my pension at 55 the rest is in flexi drawdown account my question is if iam unemployed  and not claiming benefits for a full tax year can I drawdown the remainder tax free?

Dazed_and_C0nfused

Who knows?
If your remaining pot is £1 yes.
If your remaining pot is £1 million no.
You need to provide some more detail for anyone to be able to help.
Will you have any other taxable income at all in the tax year in question?

ashleyjwh

I would have no taxable income in that year at all a d would be taking 100k

Dazed_and_C0nfused

If it was exactly £100,000 with absolutely no other income i.e. not even £2 in bank or savings interest then you would pay tax as follows,
£12,570 - no tax

£37,700 x 20% = £7,540
£49,730 x 40% = £19,892
Total tax payable £27,432

It would be more if you are Scottish resident for tax purposes.

jamesd

If that £100k is coming from a flexi-access drawdown account it is taxable income. Pension money is taxable except for the specific tax free bits. So you'd pay higher rate income tax on £50k or so of it and basic rate on most of the rest.

In addition, if it's your first taxable income from the pension the pension provider won't have a tax code for you yet, so you'll initially have tax taken as if you had £1.2 milion income. You can reclaim the excess or you can take a bit and give time for a tax code to be assigned.

eskbanker

ashleyjwh said:

I would have no taxable income in that year at all a d would be taking 100k

Why would you want to take £100K all in one go?  If you're looking to minimise tax then staggering withdrawals over multiple tax years would be far more efficient....

TVAS

100k is taxable income. Pension income is taxable in the same way as earned income is taxable. 

fizzgog

I had a pension I never knew I had, decided to withdraw it all yesterday, I've filled all paperwork in so now just waiting for the cash.
I had £24K in it,so 25% tax free leaving £18K taxed on the emergency code and they're deducting about £7,300.00 tax !! so there paying out just over £17K, they say final figure maybe different.
I earn approx £22K per year

Dazed_and_C0nfused

fizzgog said:

I had a pension I never knew I had, decided to withdraw it all yesterday, I've filled all paperwork in so now just waiting for the cash.
I had £24K in it,so 25% tax free leaving £18K taxed on the emergency code and they're deducting about £7,300.00 tax !! so there paying out just over £17K, they say final figure maybe different.
I earn approx £22K per year

Had you taken a small taxable payment (less than £1k) then no tax would have been deducted and HMRC would have sent the pension company a BR (basic rate) tax code meaning you would have only needed to pay £3,600 in tax when the balance of the fund was taken as taxable income.

eskbanker

fizzgog said:

I had a pension I never knew I had, decided to withdraw it all yesterday, I've filled all paperwork in so now just waiting for the cash.
I had £24K in it,so 25% tax free leaving £18K taxed on the emergency code and they're deducting about £7,300.00 tax !! so there paying out just over £17K, they say final figure maybe different.

Not sure if you're actually asking a question but if the pension company are saying that to cover movements in investment values between request and fulfilment then the figure they pay out could indeed be different, but that variance will be minor (even after this week's market turbulence) compared with the overpaid tax you can reclaim from HMRC via https://www.gov.uk/claim-tax-refund

Edit: I now see that you (correctly) started your own thread for this, with answers there!

xylophone

See https://adviser.royallondon.com/technical-central/pensions/benefit-options/emergency-tax-and-lump-sum-withdrawals/

Under the emergency tax code the amount being withdrawn is treated as if it will continue to be paid each month. Although in many cases it will actually be a one-off payment – known as the 'Month 1' basis.

The provider will therefore apply 1/12th of the personal allowance (£12,570 in 2021/22) to the payment, and will assess the remaining payment against 1/12th of each of the income tax bands currently in force.

Emergency rate tax is calculated on the UK tax rate 

However, where an individual is taking their pension fund as a lump sum, it is possible that they may not have any ongoing income against which the additional tax can be offset. In this case the individual has 2 options:

1. They can wait until the end of the tax year. A tax refund will be created as a result of the information submitted in their tax return OR
2. They can reclaim the overpaid tax from HMRC during the tax year using the appropriate claim form. For an individual where the overpayment is substantial this is likely to be the preferred route.

https://www.gov.uk/government/publications/income-tax-repayment-claim-when-small-pension-taken-as-a-lump-sum-p53

https://www.lovemoney.com/news/102596/pension-tax-overpayments-hmrc-get-money-back-pension-savers?utm_source=sendgrid&utm_medium=email&utm_term=article1headline