UPFLS tax free income

planforfuture

I am retiring soon and am looking to utilize UPFLS to obtain tax free income from my pension pot and I would like to have my pension pot remains as 'uncrystallized' until later years. I am looking to withdraw £16,760 p/a (i.e. to achieve 0% income tax as per current 20121-22 tax year allowance of £12,570) as I have other sources of income outside pension such as selling shares capital gain and dividends incomes.

Please advice do I need to explicitly inform the pension company that it is a UPFLS tax free income withdrawal i.e. not Flexi drawdown? Am I right that the total amount withdrawal -25% is within the annual income tax allowance, it is automatically treated as UPFLS or else?

Dazed_and_C0nfused

UPFLS is not tax free.

It is a mix of 25% tax free element and 75% taxable income.  The amount of tax ultimately due being dependent on what other taxable income you have, such as dividends, in the same tax year.

The pension company will operate the emergency tax code (1257L) on a non cumulative basis on the first payment so if you take more than £1,048 in taxable income then tax will be deducted (which you will get back if none is ultimately due).

Thrugelmir

Worth googling your providers website. As there's most likely a comprehensive guide as to the options available to you and also the process that needs to be gone through in order to effect a drawdown of funds. 

pip895

I wanted to do something like that on HL.  If I only wanted tax free cash as a monthly income all I could do was transfer/crystallise funds on a monthly basis to a drawdown account which triggered 25% to be sent to me.  So a transfer of £4000 to drawdown would give me £1000 tax free and I wouldn't touch the taxable income.  It couldn't be automated though so the forms would need to be filled in every month and it would be messy.

In the end I decided to take the taxed income too and crystallise a year of payments in one go, get the tax free portion as a lump and set up a regular drawdown.  As I have uses for the tax free element eg. in April when I can add it to my ISA I will top up the drawdown account so gradually crystallising the entire pot.

Albermarle

Please advice do I need to explicitly inform the pension company that it is a UPFLS tax free income withdrawal i.e. not Flexi drawdown? 

You need to request a UFPLS withdrawal from your provider . Normally they will insist on talking you through this, and other options to make sure you fully understand what you are doing + there will be forms to fill in every time you do it .

Better you do not refer to it as a 'tax free' UFPLS withdrawal as that confuses the issue, as Dazed and Confused has already pointed out.

Malchester

Daxed ... you said earlier

The pension company will operate the emergency tax code (1257L) on a non cumulative basis on the first payment so if you take more than £1,048 in taxable income then tax will be deducted (which you will get back if none is ultimately due).

That was my understanding and, with PensionBee, they used 1257L as the tax code when I was withdrawing from my pension meaning I did not pay tax. However, I transferred to Penfold and they insist on using BR as the tax code meaning I am deducted 20% tax on my withdrawals which are sorted out at the end of the tax year. I queried this with them but they insisted that was how it had to be done even when I said others used 1257L. I am now transferring back to PensionBee as it is much easier

NoMore

Malchester said:

Daxed ... you said earlier

The pension company will operate the emergency tax code (1257L) on a non cumulative basis on the first payment so if you take more than £1,048 in taxable income then tax will be deducted (which you will get back if none is ultimately due).

That was my understanding and, with PensionBee, they used 1257L as the tax code when I was withdrawing from my pension meaning I did not pay tax. However, I transferred to Penfold and they insist on using BR as the tax code meaning I am deducted 20% tax on my withdrawals which are sorted out at the end of the tax year. I queried this with them but they insisted that was how it had to be done even when I said others used 1257L. I am now transferring back to PensionBee as it is much easier

That's not to do with PensionBee specifically, any company will only use the Tax code specified to them by HMRC. You may find when you move back PensionBee will also use BR as they are awaiting instruction from HMRC. When you were originally with Pensionbee, HMRC must have instructed them to use the correct Tax code. 

In  PensionBee FAQ they even state this: Frequently Asked Questions | PensionBee

Due to our current procedures, we use an emergency tax code for all pension withdrawals. You can reclaim emergency tax on your withdrawals by contacting HMRC directly, and completing a tax claim form. Please keep the payslip we issue when you make a withdrawal in a safe place, and refer to it when contacting HMRC.

So changing back to PensionBee won't necessarily make it easier, you could still be on BR 
  

squirrelpie

I don't believe 1257L is an emergency tax code. That is simply the most common tax code used for people with one job and no untaxed income (see https://www.gov.uk/employee-tax-codes ).

The emergency tax codes are 1257W1, 1257M1 or 1257X (see https://www.gov.uk/tax-codes/emergency-tax-codes )

BR is the correct code to be used for an income source if you have other income sources that have already used up your personal allowance (e.g. state pension and/or company pension). It is not an emergency tax code.

The PensionBee FAQ quoted above "Due to our current procedures, we use an emergency tax code for all pension withdrawals. You can reclaim emergency tax on your withdrawals by contacting HMRC directly, and completing a tax claim form. Please keep the payslip we issue when you make a withdrawal in a safe place, and refer to it when contacting HMRC." doesn't seem to quite make sense. I would expect them to use the PAYE for most pension withdrawals, like every other pension provider. I would recommend checking the tax position of any proposed withdrawal plan with PensionBee directly.

Dazed_and_C0nfused

1257L is the emergency tax code.

https://www.gov.uk/government/publications/p9x-tax-codes

W1, M1 and X are not part of the actual tax code, they signify that the tax code is being operated on a non cumulative basis.

The emergency code on a non cumulative basis is what should be used on the first ever taxable pension payment.

Malchester

Yes. PensionBee do not, at the moment use a code from HMC as their systems do not allow it although they say they are working on it. The code I had before with them was 1257M1 and it was used for two years no problem and it was used for my first withdrawal before HMRC were aware of the pension. That, they have told me is the code that they automatically use. HMRC had set up a tax code for PensionBee as I split my code between another pension and PensionBee but, as I say, they are unable to use it yet because of their systems. In reality it doesn't matter as I am not liable for tax anyway.

jamesd

If you try to get the pension company to do UFPLS as not flexible drawdown they will refuse because it is one of the two types of flexible drawdown. They might ask if you want to use the small pot rule instead because that isn't flexible drawdown but the 10k limit on it may bar you from this without their help in creating a new pot.

The form you fill will specify whether you want to do UFPLS or take a tax free lump sum and place the balance of the portion you take into a flexi-access drawdown account.

From the day you take a UFPLS or tax free ump sum payment you'll have your annual pension contributions capped at 4k so get your last year's in fully or full but 4k before you do it. Taking a tax free lump sum from all or part of a pot doesn't trigger this, taking anything from a flexi-access drawdown pot does.

It's considerably easier to fine tune tax using a combination of tax free lump sums and flexi-access drawdown.

PCLS (tax fee lump sum) then regular monthly payments from flexi-access drawdown can solve the initial 1257M1 tax code issue because you'll be refunded the extra tax deduction in the remaining months of the year. In the year of first claiming if you've worked they may assign a BR code to the pension and give all of your personal allowance to the job. Or not, if the job didn't end up using it all.