Tax on DC pension closure withdrawal

Malchester

I have a small DC pension from which I have taken my 25% tax free and have been taking £400 per month taxable. Personal allowance for this pension is £6000. If I withdraw the remaining funds £3200 - in December how will it bd taxed? 

Will it be assumed I will get the same for the next 3 months (TO April 2023) and be taxed accordingly or, as it closes the pension will it take it as just one month for tax withnomoreincomefrom it this tax year. I know I can claim back tax paid from HMRC. I just want to know what the basis of the tax taken will be 

PensionBee don't know!
TIA

Dazed_and_C0nfused

I presume you mean tax code allowances of £6,000 are allocated to this pension i.e. tax code 600T?

When in December will the payment be made?

And will you have taken £3,200 in the current tax year before the final £3,200 is taken?

Marcon

Malchester said:

I have a small DC pension from which I have taken my 25% tax free and have been taking £400 per month taxable. Personal allowance for this pension is £6000. If I withdraw the remaining funds £3200 - in December how will it bd taxed? 

Will it be assumed I will get the same for the next 3 months (TO April 2023) and be taxed accordingly 

It'll be taxed on the above basis. If instead of withdrawing the remaining funds in December you leave £1 to be taken in January (or whatever minimum the pension provider stipulates), you'll automatically get a hefty tax refund when that £1 is paid in January.

Malchester

Dazed_and_C0nfused said:

I presume you mean tax code allowances of £6,000 are allocated to this pension i.e. tax code 600T?

When in December will the payment be made?

And will you have taken £3,200 in the current tax year before the final £3,200 is taken?

Yes you are right with the code. I would request the withdrawal on 6th December. And I will have taken £3200 April to November inclusive. I have spare allowance from another provider to cover the income above the allowance 600T and so reclaim from HMRC 

Malchester

Marcon said:

Malchester said:

I have a small DC pension from which I have taken my 25% tax free and have been taking £400 per month taxable. Personal allowance for this pension is £6000. If I withdraw the remaining funds £3200 - in December how will it bd taxed? 

Will it be assumed I will get the same for the next 3 months (TO April 2023) and be taxed accordingly 

It'll be taxed on the above basis. If instead of withdrawing the remaining funds in December you leave £1 to be taken in January (or whatever minimum the pension provider stipulates), you'll automatically get a hefty tax refund when that £1 is paid in January.

Thanks. Can you explain how this works? And if I left say £100 in the account would the same apply? Would it change things if I am issued with a P45 when I withdraw all the funds? I can then send it with a reclaim form to HMRC 

Dazed_and_C0nfused

Malchester said:

Dazed_and_C0nfused said:

I presume you mean tax code allowances of £6,000 are allocated to this pension i.e. tax code 600T?

When in December will the payment be made?

And will you have taken £3,200 in the current tax year before the final £3,200 is taken?

Yes you are right with the code. I would request the withdrawal on 6th December. And I will have taken £3200 April to November inclusive. I have spare allowance from another provider to cover the income above the allowance 600T and so reclaim from HMRC 

Well to start with you could arrange for the spare allowances to be allocated to this pension now to minimise tax deductions during the tax year.

But ignoring that you would pay £378.60 on the final payment of £3,200.

But as @Marcon says if you left a small amount in the pension you would firstly pay less tax in December and then be able to get some, if not all of it, back by taking the final payment at the end of the tax year.

If your spare allowances are sufficient you could maybe get it back in January.  But impossible to know for certain without knowing what your new tax code would be.

Malchester

Thanks for the very helpful replies. Just a further question. If I just continue taking my monthly withdrawals for Dec, Jan, Feb and then withdraw the remaining balance in March would that have an affect on tax? I could then claim it back in April?

Dazed_and_C0nfused

Malchester said:

Thanks for the very helpful replies. Just a further question. If I just continue taking my monthly withdrawals for Dec, Jan, Feb and then withdraw the remaining balance in March would that have an affect on tax? I could then claim it back in April?

There would only be a refund due if you have some additional allowance available.

And if there are additional allowances available why wouldn't you get these included in your tax code at this pension rather than wait until after the tax year has finished to claim a refund?

Most people prefer to pay less tax during the year rather than pay more than is necessary and get a refund at a later date.

NB.  You could claim any refund due in April but chances are it will be later in the summer of 2023 before you would actually receive it.

Malchester

Thanks for the very helpful replies. Just to say I have had an answer (!!!???) from PensionBee. Asking them how they tax closure withdrawals I got the answer 'can't tell you' and 'use our withdrawal calculator' which only works with a tax free withdrawal which she knew I had already taken, and is based on an average taxpayer which, of course, doesnt exist (each withdrawal i havd made has estimated an amount of tax to be paid when i am a non taxpayer. And they actually also said apply for the withdrawal and when you get the money it will tell you! They have been far less than helpful.

Dazed_and_C0nfused

Malchester said:

Thanks for the very helpful replies. Just to say I have had an answer (!!!???) from PensionBee. Asking them how they tax closure withdrawals I got the answer 'can't tell you' and 'use our withdrawal calculator' which only works with a tax free withdrawal which she knew I had already taken, and is based on an average taxpayer which, of course, doesnt exist (each withdrawal i havd made has estimated an amount of tax to be paid when i am a non taxpayer. And they actually also said apply for the withdrawal and when you get the money it will tell you! They have been far less than helpful.

I suspect it's because you're asking them a question no one else has thought to ask before.

The facts are this is an existing pension already in payment and you plan on taking a larger then average payment to empty the pot.

There will be absolutely no difference with the tax deducted whether it is the final £3,200 or you have another £1,000,000 left in it.

The pension company should notify HMRC that this pension has ceased when you take the payment which empties the pot, that will be the only difference.

That ensures HMRC don't keep on allocating £6,000 of your tax code allowances to a pension which no longer exists.