Withdrawal From Pension Subject To Emergency Tax

Penshnewbie

Hello. I have a personal pension plan. I haven’t withdrawn anything from it yet. But I’m thinking I might make a withdrawal later this year. My provider told me that anything beyond the 25% tax free amount will be subject to emergency tax. They said I can then claim this back from HMRC. Could I ask HMRC to give my provider my tax code now, prior to me making any withdrawal, to save the hassle of being overtaxed and having to claim it back?

Linton

No you cannot get the tax code set up before hand.  HMRC dont know anything about you as an "employee" until you receive your first "wages".

molerat

If you take a taxable withdrawal of less than £1047 £1048.26 no tax will be deducted.  HMRC will then issue a code to be used on further withdrawals.  You are of course then subject to how PAYE works and limited to x/12ths of the tax allowance so taking too much early on in the year could leave you in the same situation of needing to reclaim.

edited to correct the PAYE tax free amount

Penshnewbie

molerat said:

If you take a taxable withdrawal of less than £1047 no tax will be deducted.  HMRC will then issue a code to be used on further withdrawals.  You are of course then subject to how PAYE works and limited to x/12ths of the tax allowance so taking too much early on in the year could leave you in the same situation of needing to reclaim.

Thanks. I just found an article on MSExpert ("Reclaim Overpaid Pension Tax"). But it seems to be at odds with the first part of your comment ("If you take a taxable withdrawal of less than £1047 no tax will be deducted."). Here's the excerpt I'm referring to; 

“Make a small taxable withdrawal before you make the 'real' withdrawal to minimise the tax being overcharged. As this problem only occurs the first time you withdraw a taxable sum of money from your pension (basically the first time you withdraw anything that isn't your tax-free lump sum), you could withdraw the minimum amount allowed by your pension provider BEFORE you make your real and bigger withdrawal. The smallest amount you can withdraw could be anything from £100, but check with your provider to see what it allows and also check there isn't a big charge for withdrawing money from your pension which would outweigh this approach.” 

Is that at odds with what you're saying?

xylophone

https://adviser.royallondon.com/technical-central/pensions/benefit-options/emergency-tax-and-lump-sum-withdrawals/#:~:text=Unless a pension provider holds,first withdrawal from their pension.

Dazed_and_C0nfused

The emergency tax code is 1257L.

So the first £1048/month has no tax deducted 

molerat is correct.

Penshnewbie

Dazed_and_C0nfused said:

The emergency tax code is 1257L.

So the first £1048/month has no tax deducted 

molerat is correct.

Thanks. Is the part of article I've quoted incorrect, or have I misunderstood it?

molerat

That article gives lower amounts that you could withdraw.  The less you withdraw the less tax on the next withdrawal when you do get your code, if you say get a code of BR then £209.60 tax is due on that £1048 previously withdrawn.

Thrugelmir

Penshnewbie said:

Could I ask HMRC to give my provider my tax code now, prior to me making any withdrawal, to save the hassle of being overtaxed and having to claim it back?

You'll be taxed on your pension in the same way as you were on your salary. The tax system works on a cumulative basis. The later in the tax year you time the withdrawl. The less tax that will be deducted at source. 

eastcorkram

Dazed_and_C0nfused said:

The emergency tax code is 1257L.

So the first £1048/month has no tax deducted 

molerat is correct.

Would that be dependent on the pension drawdown being the only income?

Dazed_and_C0nfused

No, the first payment is always taxed using the emergency code (on a non cumulative basis).

Any adjustments required to collect extra tax or issue a cumulative tax code are made when the first taxable payment is reported to HMRC.