Tax position on small drawdown pension

WattieHudds

I have a modest £40k pension pot with Aegon from a previous employment. I'm now retired and living on a mixture of spouse's income and redundancy payout, but in the near future I'm planning to realise the Aegon pot as a drawdown. I know I can take 25% as a tax free lump sum, but Aegon are saying that for the rest of the pot, even if I elect to only take say £8k p.a., this will automatically be taxed at emergency tax code rates then I'll have to reclaim any overpaid tax at the end of the tax year. Is this right? I have no other employment and no other taxable income so I'm certain my annual income would not get close to my personal allowance, so as such why would a pension drawdown well below my personal allowance have to be taxed in such a way up front?

ncfc1902

Only the first drawdown payment should have the emergency tax code applied to it.

WattieHudds

Ah OK, so if I take the 25% TFC  in year 1, then £8k each year for the next three years, and then whatever is left in year 5, the emergency code will only be applied on the first £8k? (even so, still seems a strange way to do things)

ncfc1902

If you take that first 8k as a single payment then yes. However should you take it as a monthly drawdown income then only £666.66 (8000÷12) will have the emergency code applied. 

WattieHudds

Brilliant thank you, and is that true for each year, or just year 1?

Dazed_and_C0nfused

WattieHudds said:

Brilliant thank you, and is that true for each year, or just year 1?

The emergency tax code is 1257L.

That will be used on the first payment but once HMRC have been notified of that they will determine the correct tax code to use thereafter.

Which might be the same (1257L) or could be different.  Depends on your own personal circumstances.

For example if you have applied for Marriage Allowance it might be 1131N.

And it could change each year depending on how your circumstances change (or don't!).

WattieHudds

Perfect, thanks

ARFURCHANCE

And you may care to view an earlier thread I wrote regarding a P55 Reclaim.
If as you say - you have no other taxable income - then you could draw down the £8k as a lump - Aegon will deduct tax accordingly - and then you can reclaim online via form P55 the same day (without waiting for the end of the tax year)
Used to take 2 weeks, but my last claim was 8