Starting Drawdown - Tax Free or Taxable?

GSP

Believe it’s a form P55 online. Just be bit careful how you complete it.

merlin321

Tax refund from the HMRC took all of 12 weeks for me this year!

billy2shots

AlanP_2 said:

Claiming the tax refund from HMRC takes about 5 mins and is in your bank account within a few weeks so why worry?

Just making sure the forum member was aware to avoid any nasty surprises. 
They may will be, but their exact point was - 


'This way I will not be paying any tax as I will take my pension in the new tax year.... Just something to think about.'



Being pedantic, that's wrong. They will pay tax. 

pensionpawn

My wife has just started taking her pension via UFPLS and the bureaucracy is a nightmare. As in retirement withdrawals are not confined to regular monthly / 4 weekly pay periods I didn't expect tax to be an issue until withdrawals for the tax year exceed the annual PA, not the accumulated PA per month. When at work you get used to the idea that your PA is divided by 12 / 13 and you're taxed on the excess income. Now retired, if you take out more than £1047 of taxible pension 'income' per month you're clobbered with tax even though you don't intend to take out more than the PA per tax year. Why can't it work like a tax return where you settle up at the end of the year. The personal allowance is annual, not monthly. Also, everytime you wish to take a UFPLS payment you have to request paperwork, answer some (though not all, as this one set of questions covers 6 months) risk questions, have an illustration produced, which you accept leading to a payment. Needs simplifying. Bureaucracy overload.

Dazed_and_C0nfused

pensionpawn said:

My wife has just started taking her pension via UFPLS and the bureaucracy is a nightmare. As in retirement withdrawals are not confined to regular monthly / 4 weekly pay periods I didn't expect tax to be an issue until withdrawals for the tax year exceed the annual PA, not the accumulated PA per month. When at work you get used to the idea that your PA is divided by 12 / 13 and you're taxed on the excess income. Now retired, if you take out more than £1047 of taxible pension 'income' per month you're clobbered with tax even though you don't intend to take out more than the PA per tax year. Why can't it work like a tax return where you settle up at the end of the year. The personal allowance is annual, not monthly. Also, everytime you wish to take a UFPLS payment you have to request paperwork, answer some (though not all, as this one set of questions covers 6 months) risk questions, have an illustration produced, which you accept leading to a payment. Needs simplifying. Bureaucracy overload.

After the first payment a cumulative tax code is usually issued so the subsequent taxable payments would be taxed according to that, just like taxable employment income.

If she chooses to take more than her tax code allowances are to a particular point in the tax year then that's simply how PAYE works.

pensionpawn

Dazed_and_C0nfused said:

pensionpawn said:

My wife has just started taking her pension via UFPLS and the bureaucracy is a nightmare. As in retirement withdrawals are not confined to regular monthly / 4 weekly pay periods I didn't expect tax to be an issue until withdrawals for the tax year exceed the annual PA, not the accumulated PA per month. When at work you get used to the idea that your PA is divided by 12 / 13 and you're taxed on the excess income. Now retired, if you take out more than £1047 of taxible pension 'income' per month you're clobbered with tax even though you don't intend to take out more than the PA per tax year. Why can't it work like a tax return where you settle up at the end of the year. The personal allowance is annual, not monthly. Also, everytime you wish to take a UFPLS payment you have to request paperwork, answer some (though not all, as this one set of questions covers 6 months) risk questions, have an illustration produced, which you accept leading to a payment. Needs simplifying. Bureaucracy overload.

After the first payment a cumulative tax code is usually issued so the subsequent taxable payments would be taxed according to that, just like taxable employment income.

If she chooses to take more than her tax code allowances are to a particular point in the tax year then that's simply how PAYE works.

Just because something has always been that way doesn't mean that it should stay that way. It makes sense to take UFPLS in say four or two payments throughout the year. The current method hammers you with a tax overpayment. Solutions to avoid tax overpayment: request 12 payments of £1047 (and associated bureaucracy...) or modify the system for those who have started drawdown so that their total PA is available from the 1st day of the tax year. PA isn't 'earned' throughout the year on an accumulation basis so there's no need to apply it as a monthly allowance for retirees who can pay themselves whenever they want to. I wonder if HMRC has ever been challenged about this? Pension withdrawals are tested against a lifetime allowance until that allowance is used up by many small withdrawals or fewer larger ones. The precendent is there.

Albermarle

Also, everytime you wish to take a UFPLS payment you have to request paperwork, answer some (though not all, as this one set of questions covers 6 months) risk questions, have an illustration produced, which you accept leading to a payment. Needs simplifying. Bureaucracy overload.

This subject has come up a few times on the forum . The comments can sometimes be a bit confusing as different providers work different ways . However an approx summary could be that ;

1) Our resident IFA says providers they work with can do regular UFPLS payments, without the risk questions etc as the IFA is deemed to have already covered these angles with the client.
2) There seems to be some at least semi automation for UFPLS requests with some providers ( some quite recently)
3) A solution for many seems to be just take one UFPLS payment a year (often in March to avoid any tax issues) and keep this is in an easy access savings account and make regular withdrawals from that.
4) Go for a regular monthly income ( + a separate tax free amount ) with flexi access drawdown. 

As anything to do with pensions is a bit complicated, then that probably that does not cover all options though.