Withdrawal From Pension Subject To Emergency Tax

RetSol

Thank you, @molerat and @dunstonh! 

Penshnewbie

molerat said:

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

Do you think this is a sensible plan? I want to make a withdrawal in the near future. Then a larger withdrawal some time later. I want to avoid paying emergency tax on the second, larger withdrawal. So what if, for the first withdrawal, I withdraw 25% of my total pension pot, tax free; plus another £1048, which would also be tax free; plus a small nominal amount, say £100 (all 3 amounts as part of one withdrawal) in order to trigger the issuing of my correct tax code. Then, when it comes to making the second, larger withdrawal, my provider will have my correct tax code and I won’t be taxed at the emergancy rate?  

Notepad_Phil

Penshnewbie said:

molerat said:

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

Do you think this is a sensible plan? I want to make a withdrawal in the near future. Then a larger withdrawal some time later. I want to avoid paying emergency tax on the second, larger withdrawal. So what if, for the first withdrawal, I withdraw 25% of my total pension pot, tax free; plus another £1048, which would also be tax free; plus a small nominal amount, say £100 (all 3 amounts as part of one withdrawal) in order to trigger the issuing of my correct tax code. Then, when it comes to making the second, larger withdrawal, my provider will have my correct tax code and I won’t be taxed at the emergancy rate?  

Potential issues:

1) will your pension provider allow you to combine the three amounts into the one payment?

2) a tax code should be issued by the HMRC, but it may not be the one you want and you may need to contact them. E.g. if you have just retired then you'll have other sources of income that will effect what tax code you are given.

3) the tax code is likely to be cumulative, so it won't be until the final month that you will be able to make full use of it. E.g. if you took a payment in month 6 then you would only get the benefit of half of the tax-free allowance. 

But assuming that the above are all okay then yes it will stop you from having your payment paid using the emergency tax code.

molerat

As soon as you withdraw any taxable amount - that is not anything above £1048 it is anything above the 25% tax free - the pension co will report it to HMRC and they will issue a code.  That code will depend on what other income you have and that will affect when and how much you can take without needing a tax reclaim.  If the code issued is BR then you can take the rest anytime, if a numeric code you will likely have to wait until March or take smaller withdrawals.

Penshnewbie

Notepad_Phil said:

Penshnewbie said:

molerat said:

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

Do you think this is a sensible plan? I want to make a withdrawal in the near future. Then a larger withdrawal some time later. I want to avoid paying emergency tax on the second, larger withdrawal. So what if, for the first withdrawal, I withdraw 25% of my total pension pot, tax free; plus another £1048, which would also be tax free; plus a small nominal amount, say £100 (all 3 amounts as part of one withdrawal) in order to trigger the issuing of my correct tax code. Then, when it comes to making the second, larger withdrawal, my provider will have my correct tax code and I won’t be taxed at the emergancy rate?  

Potential issues:

1) will your pension provider allow you to combine the three amounts into the one payment?

2) a tax code should be issued by the HMRC, but it may not be the one you want and you may need to contact them. E.g. if you have just retired then you'll have other sources of income that will effect what tax code you are given.

3) the tax code is likely to be cumulative, so it won't be until the final month that you will be able to make full use of it. E.g. if you took a payment in month 6 then you would only get the benefit of half of the tax-free allowance. 

But assuming that the above are all okay then yes it will stop you from having your payment paid using the emergency tax code.

Thanks. 
1) My provider will be unaware that I've divided up my withdrawal into the 3 parts that I outlined; as far as they are concerned I will simply be making one withdrawal for x amount.
2) When you say the tax code may not be the one I want do you mean the code regards the first withdrawal, or the second? I'm thinking that the initial tax code will be an emergency one. Then they'll issue the correct one. No?
3) Sorry, I'm totally new to all of this so any patience on your part will be appreciated; I was under the impression that after my first withdrawal the issuing of my "correct" tax code will be triggered. Is there such a thing in this context as my "correct" code? If there is, and it's not the one I'm expecting, or hoping for, I guess that will be tough luck?

MallyGirl

Penshnewbie said:

Do you think this is a sensible plan? I want to make a withdrawal in the near future. Then a larger withdrawal some time later. I want to avoid paying emergency tax on the second, larger withdrawal. So what if, for the first withdrawal, I withdraw 25% of my total pension pot, tax free; plus another £1048, which would also be tax free be at 0% tax rate ; plus a small nominal amount, say £100 (all 3 amounts as part of one withdrawal) in order to trigger the issuing of my correct tax code. Then, when it comes to making the second, larger withdrawal, my provider will have my correct tax code and I won’t be taxed at the emergancy rate?  

It will help if you get the terminology a bit clearer - there will be no tax due on the £1048 but it is not 'tax free' it is 'at 0% rate'

Notepad_Phil

Penshnewbie said:

Notepad_Phil said:

Penshnewbie said:

molerat said:

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

Do you think this is a sensible plan? I want to make a withdrawal in the near future. Then a larger withdrawal some time later. I want to avoid paying emergency tax on the second, larger withdrawal. So what if, for the first withdrawal, I withdraw 25% of my total pension pot, tax free; plus another £1048, which would also be tax free; plus a small nominal amount, say £100 (all 3 amounts as part of one withdrawal) in order to trigger the issuing of my correct tax code. Then, when it comes to making the second, larger withdrawal, my provider will have my correct tax code and I won’t be taxed at the emergancy rate?  

Potential issues:

1) will your pension provider allow you to combine the three amounts into the one payment?

2) a tax code should be issued by the HMRC, but it may not be the one you want and you may need to contact them. E.g. if you have just retired then you'll have other sources of income that will effect what tax code you are given.

3) the tax code is likely to be cumulative, so it won't be until the final month that you will be able to make full use of it. E.g. if you took a payment in month 6 then you would only get the benefit of half of the tax-free allowance. 

But assuming that the above are all okay then yes it will stop you from having your payment paid using the emergency tax code.

Thanks. 
1) My provider will be unaware that I've divided up my withdrawal into the 3 parts that I outlined; as far as they are concerned I will simply be making one withdrawal for x amount.
2) When you say the tax code may not be the one I want do you mean the code regards the first withdrawal, or the second? I'm thinking that the initial tax code will be an emergency one. Then they'll issue the correct one. No?
3) Sorry, I'm totally new to all of this so any patience on your part will be appreciated; I was under the impression that after my first withdrawal the issuing of my "correct" tax code will be triggered. Is there such a thing in this context as my "correct" code? If there is, and it's not the one I'm expecting, or hoping for, I guess that will be tough luck?

1 - this might just be how you've written it down, but your provider will need to be made aware that you want to take a) the 25% tax-free lump sum and  b) the £1148 from the now crystallised pot. You won't be able to just ask for £x as they won't know how that is made up. My comment was just that theoretically a provider might not allow you to take a tax-free lump sum and a drawdown from the crystallised pot in the same transaction. They probably will, and even if they don't then it's just a matter of having to do two requests for money from your provider, the first for the 25% tax-free lump sum, the second for the £1148.

2 - I'm talking about the tax code that gets sent after your withdrawal of the taxable £1148 (which will be done at the emergency tax rate). Their idea of 'correct' may differ from yours, especially if you have had other incomes this tax year. So it was just to let you know of that possibility, which hopefully won't happen.

3 - a non-emergency tax code should be triggered by your withdrawal of the £1148. If you think the one you get is wrong then you can always phone them up (do it as early as possible). I've had to do that in the past and they were very easy to talk to.