Taking wife's pension 21 February at 12:08PM in Pensions, annuities & retirement planning 12 replies 629 views

oysterman

Afternoon guys. My wife has a small dc pension with Tesco's, approx value £10600.
               She would like to take it all in one go, what's the best way of doing it? 

Am i assuming because it's over the £10,000 small pot rule she would get taxed on it.
 She  hasn't been working for the last year, so am I correct in that she could claim any tax back? Hopefully this makes sense. Cheers 

devoncop22

My wife was in a similar position. What is a pain is that before she could withdraw the pension it has to be transferred into a retirement plan via an IFA so that the box could be ticked about taking independent financial advice.

We then withdrew about 10,000 per financial year. She only had a residual pension at aged 55 of about 1200 a year so the whole lot was (eventually) tax free. What happens of course is that HMRC will tax it initially as it assumes that the 10,000 is now her monthly income ....(I wish !) 

You then can complete a single form online to reclaim the tax via her HMRC account. I think it took about 2 months before the tax was repaid direct into her account.

Linton

The small pot rule does not affect the tax.  It just gives you the right to access the cash.

Yes,  tax is normally deducted although the total annual income will be below the tax allowance.  Excess tax deductions from pension lump sums will be refunded at the end of the tax year or can be claimed earlier from HMRC.

artyboy

The small pots rule relates to LTA impact, not to how your wife gets taxed on withdrawal. 

That said, if she has had no other income in this tax year, and withdraws it in March, I would not expect any tax to be deducted (because if it falls in the last PAYE month for the tax year, HMRC would have no reason to think tax needed to be deducted)

VXman

devoncop22 said:

My wife was in a similar position. What is a pain is that before she could withdraw the pension it has to be transferred into a retirement plan via an IFA so that the box could be ticked about taking independent financial advice.

We then withdrew about 10,000 per financial year. She only had a residual pension at aged 55 of about 1200 a year so the whole lot was (eventually) tax free. What happens of course is that HMRC will tax it initially as it assumes that the 10,000 is now her monthly income ....(I wish !) 

You then can complete a single form online to reclaim the tax via her HMRC account. I think it took about 2 months before the tax was repaid direct into her account.

My wife had £180,000 in her teachers AVC with the Pru. If she converted it to drawdown with them she had to take IFA advice. However, by transferring to Vanguard no advice was required. Then to convert to drawdown and take the 25% tax free sum immediately she just needed to say she had spoken to pensionwise (free guidance). No proof needed. Job done 

molerat

artyboy said:

The small pots rule relates to LTA impact, not to how your wife gets taxed on withdrawal. 

That said, if she has had no other income in this tax year, and withdraws it in March, I would not expect any tax to be deducted (because if it falls in the last PAYE month for the tax year, HMRC would have no reason to think tax needed to be deducted)

The month is irrelevant as it will be taxed at 1257LM1 so only one month tax free allowance

artyboy

molerat said:

artyboy said:

The small pots rule relates to LTA impact, not to how your wife gets taxed on withdrawal. 

That said, if she has had no other income in this tax year, and withdraws it in March, I would not expect any tax to be deducted (because if it falls in the last PAYE month for the tax year, HMRC would have no reason to think tax needed to be deducted)

The month is irrelevant as it will be taxed at 1257LM1 so only one month tax free allowance

Interesting - given I've read several threads on here about people taking single annual withdrawals from their pensions in March specifically to mitigate tax deductions versus doing it at other times of the year... 

Linton

artyboy said:

The small pots rule relates to LTA impact, not to how your wife gets taxed on withdrawal. 

That said, if she has had no other income in this tax year, and withdraws it in March, I would not expect any tax to be deducted (because if it falls in the last PAYE month for the tax year, HMRC would have no reason to think tax needed to be deducted)

As I understand it, if the payment is from a new "employer", which it would be if the OPs wife has not previously accessed the pension, the emergency tax code of 1257L/M1 is used. This is non-cumulative so it does not matter when in the year it is taken.

artyboy

Linton said:

artyboy said:

The small pots rule relates to LTA impact, not to how your wife gets taxed on withdrawal. 

That said, if she has had no other income in this tax year, and withdraws it in March, I would not expect any tax to be deducted (because if it falls in the last PAYE month for the tax year, HMRC would have no reason to think tax needed to be deducted)

As I understand it, if the payment is from a new "employer", which it would be if the OPs wife has not previously accessed the pension, the emergency tax code of 1257L/M1 is used. This is non-cumulative so it does not matter when in the year it is taken.

Ah, gotcha!

molerat

artyboy said:

Nomolerat said:

artyboy said:

The small pots rule relates to LTA impact, not to how your wife gets taxed on withdrawal. 

That said, if she has had no other income in this tax year, and withdraws it in March, I would not expect any tax to be deducted (because if it falls in the last PAYE month for the tax year, HMRC would have no reason to think tax needed to be deducted)

The month is irrelevant as it will be taxed at 1257LM1 so only one month tax free allowance

Interesting - given I've read several threads on here about people taking single annual withdrawals from their pensions in March specifically to mitigate tax deductions versus doing it at other times of the year... 

If they already have a tax code for that pension then that would be the case.

oysterman

Many thanks for the replies 👍