Do I notify HMRC regards taking my 25% tax free pension pot lump sum even though it’s tax free?

Penshnewbie

I’m soon to take my tax free lump sum; do I still notify HMRC even though I won’t have to pay any tax on it? Or, if it is necessary for them to be notified, will my provider do that? 

Marcon

Penshnewbie said:

I’m soon to take my tax free lump sum; do I still notify HMRC even though I won’t have to pay any tax on it? Or, if it is necessary for them to be notified, will my provider do that? 

If you notify them you'll confuse the hell out of them, so don't! No need to.

Pat38493

Penshnewbie said:

I’m soon to take my tax free lump sum; do I still notify HMRC even though I won’t have to pay any tax on it? Or, if it is necessary for them to be notified, will my provider do that? 

As said above I don't think you have to mention it at all on your tax notification or even tax return as far as I know.

By the way, probably you have already taken advice about this but I raised this topic some time ago on this forum - as I am approaching 55 in the next couple of years, I am being approached by Uncle Tom Cobley and all encouraging me to take my full tax free lump sum immediately.

After seeing the threads here I took a couple of things on board

- First question is - do I really actually need that tax free money now - what am I going to use it for, and is it more important and/or more advantageous than leaving it in a highly tax efficient wrapper in the pension scheme.  That said, with current volatility, high inflation, and increasing interest rates, paying of the mortgage is looking like it might become increasingly attractive whereas it didn't look like a good option a year ago.

- The other thing I learned which I hadn't realised at all is that if you take your entire tax free cash, you will crystallise your entire DC pension pot(s) and this will mean you have used the relevant calculated percentage of the current lifetime allowance.  This may or may not be relevant for you depending on your situation, but you then might not be able to take advantage of any future increases in the pension lifetime allowance. 

Penshnewbie

Pat38493 said:

Penshnewbie said:

I’m soon to take my tax free lump sum; do I still notify HMRC even though I won’t have to pay any tax on it? Or, if it is necessary for them to be notified, will my provider do that? 

As said above I don't think you have to mention it at all on your tax notification or even tax return as far as I know.

By the way, probably you have already taken advice about this but I raised this topic some time ago on this forum - as I am approaching 55 in the next couple of years, I am being approached by Uncle Tom Cobley and all encouraging me to take my full tax free lump sum immediately.

After seeing the threads here I took a couple of things on board

- First question is - do I really actually need that tax free money now - what am I going to use it for, and is it more important and/or more advantageous than leaving it in a highly tax efficient wrapper in the pension scheme.  That said, with current volatility, high inflation, and increasing interest rates, paying of the mortgage is looking like it might become increasingly attractive whereas it didn't look like a good option a year ago.

- The other thing I learned which I hadn't realised at all is that if you take your entire tax free cash, you will crystallise your entire DC pension pot(s) and this will mean you have used the relevant calculated percentage of the current lifetime allowance.  This may or may not be relevant for you depending on your situation, but you then might not be able to take advantage of any future increases in the pension lifetime allowance. 

Thanks. I have seen several threads on here regards volatility. Some people have been looking at their pension value fall and have been asking if they should take the money out and reinvest it. Most of the advice I've seen, also on here, is to leave it alone; markets go up and down in the short term but generally up in the long term. Some advised to look at the value once a year, and not to be tempted to look every five minutes. I haven't got a clue about any of this; just letting you know what I've read on here.

Regards what you said about crystallising your pot; All I know about this is that your pot is uncrystallised until you take money from it at which point it becomes crystallised. Is an uncrystallised pot better than a crystallised one?

Last thing; I had a quick look at 'pension lifetime allowance' and it seems to only apply to pots over £1million; I'm nowhere near that )

Linton

Penshnewbie said:

Pat38493 said:

Penshnewbie said:

I’m soon to take my tax free lump sum; do I still notify HMRC even though I won’t have to pay any tax on it? Or, if it is necessary for them to be notified, will my provider do that? 

As said above I don't think you have to mention it at all on your tax notification or even tax return as far as I know.

By the way, probably you have already taken advice about this but I raised this topic some time ago on this forum - as I am approaching 55 in the next couple of years, I am being approached by Uncle Tom Cobley and all encouraging me to take my full tax free lump sum immediately.

After seeing the threads here I took a couple of things on board

- First question is - do I really actually need that tax free money now - what am I going to use it for, and is it more important and/or more advantageous than leaving it in a highly tax efficient wrapper in the pension scheme.  That said, with current volatility, high inflation, and increasing interest rates, paying of the mortgage is looking like it might become increasingly attractive whereas it didn't look like a good option a year ago.

- The other thing I learned which I hadn't realised at all is that if you take your entire tax free cash, you will crystallise your entire DC pension pot(s) and this will mean you have used the relevant calculated percentage of the current lifetime allowance.  This may or may not be relevant for you depending on your situation, but you then might not be able to take advantage of any future increases in the pension lifetime allowance. 

Thanks. I have seen several threads on here regards volatility. Some people have been looking at their pension value fall and have been asking if they should take the money out and reinvest it. Most of the advice I've seen, also on here, is to leave it alone; markets go up and down in the short term but generally up in the long term. Some advised to look at the value once a year, and not to be tempted to look every five minutes. I haven't got a clue about any of this; just letting you know what I've read on here.

Regards what you said about crystallising your pot; All I know about this is that your pot is uncrystallised until you take money from it at which point it becomes crystallised. Is an uncrystallised pot better than a crystallised one?

Last thing; I had a quick look at 'pension lifetime allowance' and it seems to only apply to pots over £1million; I'm nowhere near that )

A crystalised pot is one from which you have taken the 25% tax free.  You can then take taxable money from it if you wish.  Depending on the platform it may be regarded as a separate account or the platform may simply may maintain a % crystalisation figure.

Notepad_Phil

Penshnewbie said:

Regards what you said about crystallising your pot; All I know about this is that your pot is uncrystallised until you take money from it at which point it becomes crystallised. Is an uncrystallised pot better than a crystallised one?

Uncrystallised just means that you can still take a tax-free lump sum from it, so it depende on how you're planning to drawdown your income as to which is better.

Note, you can actually have a pot containing crystallised and uncrystallised segments - e.g. if you have a pot of £100k and take a tax-free lump sum of £12500 then the pot will now contain a £50k uncrystallised segment and a £37500 crystallised segment.

Penshnewbie said:
Last thing; I had a quick look at 'pension lifetime allowance' and it seems to only apply to pots over £1million; I'm nowhere near that )

It also depends heavily on investment returns, how young you are when you start to access the pot and how much of the growth you take out of it (there are LTA checks at age 75 which can hit people if they've just left the pension to grow). I reckon an early retiree of 55 with a pot quite a bit less than £1million could quite easily start to run into LTA issues if they're not careful, so don't be fooled into thinking that you have to have a  £1million starting pot to worry about it.

Albermarle

 I haven't got a clue about any of this; just letting you know what I've read on here.

Just by the fact you have read this forum from time to time, means you probably have more of a clue than many. Still plenty more to learn.

First question is - do I really actually need that tax free money now - what am I going to use it for, and is it more important and/or more advantageous than leaving it in a highly tax efficient wrapper in the pension scheme.  That said, with current volatility, high inflation, and increasing interest rates, paying of the mortgage is looking like it might become increasingly attractive whereas it didn't look like a good option a year ago.

It can just as easily be argued that now is a better time to stay invested, as by taking the 25% tax free in cash you are locking in the investment losses over the last few months and will miss out if the markets start to recover. The 'current volatility' is actually not that exceptional and has certainly been a lot worse in previous times.