Tax on pension payment.

ischofie1

Hi All,

I have just withdrawn my personal allowance fro S/Life & was surprised to see tax deducted. 

They have my tax code & knew I was only drawing the full amount up to this code in this tax year. 

They’ve explained that as we’re only partially through the year, they’ve had to tax for the remainder of the year & that I’ll need to recover the money via HMRC. 
This seems odd to me as I went through this process when I withdrew in the 1st year as S/Life didn’t have my tax code, however I thought that now they control my tax code, this would negate the need for to have to have to claw money back. 

If someone could advise if this seems correct. 

Thanks in advance. 

Albermarle

Did you draw it all in one month? Then HMRC assume that you will draw this every month and tax you accordingly. So even if SL have the right tax code, you will pay tax . One easy solution is to make the withdrawal in March, the last month of the tax year.

ischofie1

Yes I did draw it in 1 month. 

Thanks for your reply, this sort of confirms S/Life are correct & that I’ll have go go through HMRC to get money back. 

Still not sure on the tax amount though. 

They seem to of deducted about 12% from £12570. 

If HRMC were assuming I’d draw this for the remainder of the tax year then this would equate to approx 7 x £12570, IE about £85K. Surely they’d be taxing at more than 12% on this. 

dunstonh

I have just withdrawn my personal allowance fro S/Life & was surprised to see tax deducted. 
They have my tax code & knew I was only drawing the full amount up to this code in this tax year. 

What they knew from what you have told them vs what HMRC require them to do are two different things.
If they have an active tax code then this would suggest you have already drawn money from this pension previously.

They’ve explained that as we’re only partially through the year, they’ve had to tax for the remainder of the year & that I’ll need to recover the money via HMRC.&nbsp;<br><span>This seems odd to me as I went through this process when I withdrew in the 1st year as S/Life didn’t have my tax code, however I thought that now they control my tax code, this would negate the need for to have to have to claw money back.&nbsp;</span>

They are correct.   PAYE works by taking what you have earned so far and assuming that is what you are going to earn, on average, over the remainder of the tax year.

So, if you took £10,000 in month 1, then it would tax you on the assumption you are taking £10,000 each month (120k).   If  you took £10,000 in month 6, it would assume you are going to earn £20,000 in the tax year.

If you are taking your money on drip, it will automatically correct itself over the tax year as the averaging gets closer to the total by March.    However, if you are taking it in a single one off with no more withdrawals to come then you will need to reclaim the tax manually.

It sounds like this is going to be a one off this tax year.  So, in future you may prefer to do it in March each year or take it monthly so it equates to the personal allowance over the year.

molerat

Your tax allowance is allocated in 1/12ths over the year.  We are currently in month 5 so only 5 /12ths was allocated to this payment. That is the way PAYE works.

The easiest way to sort this may be to take another very small payment in March paying a small amount of tax over the year but getting the tax paid so far refunded.

Not sure what the smallest allowable take would be but there may still be some flexibility to pay no tax due to the way PAYE works.

What code was used and how much taxable did you withdraw ?

edit :  If you took £12570 with a 1257 tax code there is another £9.12 available to you tax free.

Albermarle

f HRMC were assuming I’d draw this for the remainder of the tax year then this would equate to approx 7 x £12570, IE about £85K. Surely they’d be taxing at more than 12% on this. 

I did not explain it correctly, better info in the two posts above.

ischofie1

Thanks for all the replies. It’s clear now. 

I think I’ll wait till the end of the tax year then claim it back. 

Dazed_and_C0nfused

ischofie1 said:

Thanks for all the replies. It’s clear now. 

I think I’ll wait till the end of the tax year then claim it back. 

If you're happy to wait there ain't actually any need to claim it back.

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

AlanP_2

Why wait?

Takes about 5 mins to do online and you get money in your bank account a few weeks later.