Tax on withdrawal of Pension Funds

VXman

I would be interested in some knowledgeable feedback on this tax payment situation.

I had £30254.79 in pension funds with the Prudential. It was contributions from my AVC's as a teacher. I have been retired for a couple of years now and as I am reaching 60 this week I decided to withdraw it. Even with my Teachers pension income I will still be under the 40% tax threshold for this tax year.

When the money arrived in my account I was surprised by how low it was (£21769.29). When the paperwork arrived I realised it was down to the tax take.

So 25% was tax free but on the remaining £22691.10 it appears they have taxed at 37.39%. Now I understand they charge emergency tax but I assumed that would be at 20%. OK - I may have been uninformed on that aspect. Maybe it's 40%. But 37.39%??? 

 By my calculations at 20% it should have been £4538.  That's £3000 that should be in my pocket not the tax mans!!

 How/Why that figure?

lisyloo

You say “it appears”.
what does the paperwork actually say?
were there charges?
did the investment go down?

apologies if I’m misunderstand but it appears you are surmising the figures.

VXman

lisyloo said:

You say “it appears”.
what does the paperwork actually say?
were there charges?
did the investment go down?

apologies if I’m misunderstand but it appears you are surmising the figures.

No, the above are precise figures according to the paperwork....

The pre tax pay-out was £30254.79. Tax taken off was £8485.50   25% should have of the £30254.79 should have been tax free.

I received £22691.10    

My calculations say this was taxed at 37.39%

Dazed_and_C0nfused

It was taxed at a mix of 20, 40 and 45%.

Which would be correct for a first pension payment equivalent to £272k/annum.

If you don't need to complete a Self Assessment return them HMRC will automatically refund any overpaid tax.

https://www.gov.uk/tax-overpayments-and-underpayments

VXman

Dazed_and_C0nfused said:

It was taxed at a mix of 20, 40 and 45%.

Which would be correct for a first pension payment equivalent to £272k/annum.

If you don't need to complete a Self Assessment return them HMRC will automatically refund any overpaid tax.

https://www.gov.uk/tax-overpayments-and-underpayments

  So they assume this is a monthly income and tax it accordingly?

TadleyBaggie

That's pretty much how the PAYE system works. Catches out people who have a large one-off bonus payment too, however in their case this often fixes itself during the remaining tax year.

Dazed_and_C0nfused

VXman said:

Dazed_and_C0nfused said:

It was taxed at a mix of 20, 40 and 45%.

Which would be correct for a first pension payment equivalent to £272k/annum.

If you don't need to complete a Self Assessment return them HMRC will automatically refund any overpaid tax.

https://www.gov.uk/tax-overpayments-and-underpayments

  So they assume this is a monthly income and tax it accordingly?

Yes, that's how PAYE has worked for the last 70 years 🙂

If you didn't want to pay as much tax upfront you could have just taken a smaller first payment, say £10, and waited for HMRC to issue a tax code to the pension company, likely to be BR from what you've posted, then take the remainder.

You would have then paid 20% on the second payment plus the £2 owed from the first payment.

Jeremy535897

Dazed_and_C0nfused said:

VXman said:

Dazed_and_C0nfused said:

It was taxed at a mix of 20, 40 and 45%.

Which would be correct for a first pension payment equivalent to £272k/annum.

If you don't need to complete a Self Assessment return them HMRC will automatically refund any overpaid tax.

https://www.gov.uk/tax-overpayments-and-underpayments

  So they assume this is a monthly income and tax it accordingly?

Yes, that's how PAYE has worked for the last 70 years 🙂

If you didn't want to pay as much tax upfront you could have just taken a smaller first payment, say £10, and waited for HMRC to issue a tax code to the pension company, likely to be BR from what you've posted, then take the remainder.

You would have then paid 20% on the second payment plus the £2 owed from the first payment.

It seems rather odd that the payment to OP of £22,691.10 is exactly 75% of the gross amount of £30,254.79. Also OP says tax of £8,485.50 was deducted, but £30,254.79 less £8,485.50 is £21,769.29, not £22,691.10.

molerat

Jeremy535897 said:

It seems rather odd that the payment to OP of £22,691.10 is exactly 75% of the gross amount of £30,254.79. Also OP says tax of £8,485.50 was deducted, but £30,254.79 less £8,485.50 is £21,769.29, not £22,691.10.

I think you need to read the OP again

VXman

Dazed_and_C0nfused said:

VXman said:

Dazed_and_C0nfused said:

It was taxed at a mix of 20, 40 and 45%.

Which would be correct for a first pension payment equivalent to £272k/annum.

If you don't need to complete a Self Assessment return them HMRC will automatically refund any overpaid tax.

https://www.gov.uk/tax-overpayments-and-underpayments

  So they assume this is a monthly income and tax it accordingly?

Yes, that's how PAYE has worked for the last 70 years 🙂

If you didn't want to pay as much tax upfront you could have just taken a smaller first payment, say £10, and waited for HMRC to issue a tax code to the pension company, likely to be BR from what you've posted, then take the remainder.

You would have then paid 20% on the second payment plus the £2 owed from the first payment.

Not really an option. 

It just seems ridiculous that Prudential cannot explain to HMRC that this is a one off pay-out. HMRC could tell them my tax code. They could even advise them of my regular income and what % to take off. 

No sorry - that would be far to complex for HMRC. Just over tax and let me have the hassle of trying to get it back.

I preferred the Hong Kong tax system when I worked there. You take all your money pre tax and then pay your bill 18 months later when all the dust has settled and you know exactly what is owed.

Jeremy535897

molerat said:

Jeremy535897 said:

It seems rather odd that the payment to OP of £22,691.10 is exactly 75% of the gross amount of £30,254.79. Also OP says tax of £8,485.50 was deducted, but £30,254.79 less £8,485.50 is £21,769.29, not £22,691.10.

I think you need to read the OP again

Yes, I looked at the later post, which said he received £22,691.10.