Tax code for DC pension

waveydavey48

I start drawing my DB pension, circa £16,500 pa, in a few months. I also have a DC pension pot of about £170k which I will take UFPLS withdrawals from, probably about £10k pa, until my SP begins in 2029.

As the DB pension takes me above the £12,570 personal allowance my DC pot withdrawals will be taxable (apart from the 25% tax free bit of course). 

Can I request HMRC to assign a tax code to my DC pension provider so the right amount if tax is deducted from the DC withdrawals so they don't take too much tax in the first instance which I then have to claim back by filling in a form?

Thanks. 

Dazed_and_C0nfused

No.  HMRC will not do anything about tax codes until the employer/pension payer makes the first payment.

The emergency tax code (1257L) will be operated on the first (taxable) payment and once you see that payment on your Personal Tax Account you can ask for a code to be issued.

Simplest thing is to take say £10 out as the first taxable payment and then sort out a new tax code.  You will owe £2 on the £2 but it is so small it won't be a problem when the new code (BR?) is first operated.

NB.  HMRC will initially estimate your annual pension based on the first payment so when asking for a new code you should provide a better estimate.

[Deleted User]

Surprises me that HMRC won’t issue an accurate tax code until after the payment even if provided the data.  They would for foreign tax residents. 

Notepad_Phil

I doubt that the pension provider will take any tax off a first payment of £10 - if the OP checks that their pension provider will use the 1257L/M1 emergency tax code then using UFPLS they should be able to take out up to £1396 (and some pennies) without any tax being taken.

 I've found the HL tax calculator at https://www.hl.co.uk/retirement/preparing/tax-matters/emergency-calculator to be useful in calculating the tax that should be taken on the first payment from a provider.

Dazed_and_C0nfused

Notepad_Phil said:

I doubt that the pension provider will take any tax off a first payment of £10 - if the OP checks that their pension provider will use the 1257L/M1 emergency tax code then using UFPLS they should be able to take out up to £1396 (and some pennies) without any tax being taken.

 I've found the HL tax calculator at https://www.hl.co.uk/retirement/preparing/tax-matters/emergency-calculator to be useful in calculating the tax that should be taken on the first payment from a provider.

The pension company won't deduct it, that's why the op will owe £2, which will usually be included in the tax deducted from the next payment after the new tax code is issued.

waveydavey48

Thanks folks. I will ask the DC provider (fidelity) though I guess they will say they can't "advise" me.

Dazed_and_C0nfused

Ask them what?  They have to use the emergency tax code on the first payment.

molerat

waveydavey48 said:

Thanks folks. I will ask the DC provider (fidelity) though I guess they will say they can't "advise" me.

There is nothing to ask them.  They must implement tax codes as laid down in legislation which, in the absence of receiving anything from HMRC, is 1257X.  You getting HMRC to allocate a code before the event will be like wading through treacle.  As above, take a small first dip and once the provider informs HMRC a code will be allocated.  Most likely BRX which you then will need to phone up and get changed to BR so that the first dip is taken into consideration.  By far the easiest method, I had the correct tax code on my SIPP about a week after taking the first payment.

mika_dm

What happens if you take a larger annually lump sum, let's say in March? Will it still apply the emergency tax and you have to phone HMRC or will it be the right tax code as it will be just one lump sump at the end of the year?(hence an accurate tax on the full sum).

molerat

It does not matter when in the year you take the lump sum, it will always be taxed on the stand alone monthly basis.  The only time the correct tax will be deducted is if you have an HMRC allocated tax code.

mika_dm

molerat said:

It does not matter when in the year you take the lump sum, it will always be taxed on the stand alone monthly basis.  The only time the correct tax will be deducted is if you have an HMRC allocated tax code.

Do you have to do this every financial year or just when you get the first ever payment?