Income tax on flexi drawdown pension

Cornwalllynne

Help please, I have a flexi drawdown pension & have already withdrawn 25% tax free. I watched Martin Lewis's programme on pensions - which appeared to tell me that if my current marginal rate of income tax is nil, then I should be able to withdraw the rest of the pot without paying income tax. Is this correct please? I emailed Pension Wise - who say I will have to pay tax. The low income tax reform website seems to confirm that I can withdraw the whole pot tax free. I am confused can anyone help please? I need to move quickly, as when my state pension rises in April I may be liable for income tax.

Dazed_and_C0nfused

Cornwalllynne said:

Help please, I have a flexi drawdown pension & have already withdrawn 25% tax free. I watched Martin Lewis's programme on pensions - which appeared to tell me that if my current marginal rate of income tax is nil, then I should be able to withdraw the rest of the pot without paying income tax. Is this correct please? I emailed Pension Wise - who say I will have to pay tax. The low income tax reform website seems to confirm that I can withdraw the whole pot tax free. I am confused can anyone help please? I need to move quickly, as when my state pension rises in April I may be liable for income tax.

No, it's utter rubbish.

You pay tax based on your annual taxable income with what type of income (pension, earnings, interest , dividends etc) being crucial.

If your pot is £8,000 and you have no other taxable income then no tax would be due.

If your pot was £80,000 and you had no other taxable income you would be paying basic and higher rate tax on it.  But the first £12,570 would be covered by your Personal Allowance.

Cornwalllynne

Thank you - it is unusual for Martin Lewis to give out wrong information.

msallen

Cornwalllynne said:

Thank you - it is unusual for Martin Lewis to give out wrong information.

It happens pretty much every time he opens his mouth.

older_and_no_wiser

msallen said:

Cornwalllynne said:

Thank you - it is unusual for Martin Lewis to give out wrong information.

It happens pretty much every time he opens his mouth.

Haha - you are on his forum....he may be watching 

artyboy

Dangers of doing a show live to camera... although I would be interested to know what it was he said, verbatim - as a lot of the time tax related commentary is open to interpretation!

TadleyBaggie

older_and_no_wiser said:

Haha - you are on his forum....he may be watching 

Doubt it, he sold the MSE site years ago.

dunstonh

Cornwalllynne said:

Thank you - it is unusual for Martin Lewis to give out wrong information.

He doesn't have the best track record when it comes to investment products.    More often than not, he tends to avoid talking about them.

Many years ago, he told me that he cannot cover every scenario as his segments on each thing are short and he has to keep the presentation interesting so people don't lose interest.   That is fair enough but in some areas, it can lead to misunderstandings or outcomes that are not optimal for everyone.           The regulator has spent decades trying to find ways to deliver simplified advice that is right for everyone but has failed to do so.   The best they can get to is about 2/3rds of the time it is right.  And that is the problem when you try to simplify.

There is also the possibility that, with the speed he talks and the subject not being high in your areas of knowledge you may have misunderstood.   For example, if you have unused personal allowance than drawing some of your pension would not be subject to tax.   Did he say "some" or "all" [of your pension]?

Haha - you are on his forum....he may be watching  

It isn't his forum any more and he no longer posts here.

Cornwalllynne

Martin Lewis said that you pay income tax on withdrawals from flexi access pension pots at your marginal rate of income tax. Therefore there would be no income tax to pay if you are a none tax payer. The website of the Low Income Tax Reform group - also contains the same information. I have no idea where to find out if this is correct.

artyboy

Cornwalllynne said:

Martin Lewis said that you pay income tax on withdrawals from flexi access pension pots at your marginal rate of income tax. Therefore there would be no income tax to pay if you are a none tax payer. The website of the Low Income Tax Reform group - also contains the same information. I have no idea where to find out if this is correct.

And that, there, is the danger of trying to put a complex explanation into simple language (to dunstonh's point) - yes, you will pay no tax on a withdrawal - but ONLY up to the level where you DO start to pay tax, which is when what you have withdrawn, along with any other relevant income, exceeds your personal allowance for the year.

It might have been better if Martin said that you'll just get taxed on it as though it was money you were being paid by an employer. Another simplification, but maybe one closer to hitting the nail on the head...

molerat

https://www.litrg.org.uk/tax-guides/pensioners/what-tax-position-when-i-take-money-my-pension-flexibly#toc-how-much-tax-will-i-have-to-pay-on-taking-money-out-of-my-pension-

You may be able to draw money out of your money purchase or defined contribution pension very flexibly – as much as you like, when you like, from age 55. But do not rush. A hasty decision could cost you heavily in the form of an unwanted tax bill

The rules are very complicated in many ways and you should try to understand them before you act.

Taxable amounts will be added to your other income, probably giving you an extra tax bill. The extra income could tip you into a higher tax rate, and/or could mean that you are no longer entitled to extra tax allowances.