HL 2880 to 3600

otb666

Hi i paid 2880 into sipp which has been increased to 3600 and i am now trying to withdraw it I have been unable to set up a Nominated Bank account on line I rang them and they said i had to decide how i want lump sum before they send me application to withdraw.  crystalizes something I am so outta my depth , i have small pension and 56 i have 5575 available from my tax allowance 1130 as my pension is small
"There are two ways in which you can withdraw your whole pension as a lump sum. The first is through a Small Pots payment and the second an Uncrystallised Fund Pension Lump Sum, or 'UFPLS' payment"  ???????????

molerat

Are you intending to do the annual  £2880 in and £3600 out dance ? Is the £3600 held as cash ?

otb666

@molerat yes I am I have it in HL SIPP Cash

molerat

If you don't want to mess around with reclaiming tax you need to do a UFPLS for no more than £1397 which means no tax will be deducted and HMRC will issue a code for future use and gets the bank accounts and ID requirements sorted out.  If you intend keeping the SIPP open you need to leave £50 in it (earning 1.7% interest)  That leaves you another £2153 available which you can then withdraw in September with no tax being deducted.  To explain, from the £3550 you can withdraw £2662 tax free.  With a code of 557 you get £464.92 monthly tax allowance so that accumulates to over £2662 in September.  In following years you can withdraw the full £3600, £2700 tax free, in a month according to the tax code allocated.  Some people will withdraw the whole amount and then reclaim the tax but that is down to how much tile you want to spend doing admin.  You can also figure out when to pay your £2880 in so it is there for the minimum time necessary.

Bimbly

Your £3,600 is available to you as a drawdown as 25% tax free and 75% taxable.

Some people just take the 25% tax free lump sum and plan to take the taxable bit later, some people take a portion of both their taxable and non-taxable pension, and some people may just want to take the lot. There is also the option of buying an annuity (but £3,600 would be too small to do that)

As you want to take the lot, you would tell HL you want to make a full withdrawal of your pot of both the tax free lump sum and the taxable portion. You may need to keep a small amount in the account to keep the account open - so check on that. 

Note that you are likely to be taxed on the taxable portion because HL doesn't have the correct tax code for you. You can claim this back as it seems you will remain below the income tax threshold. (I assume, from what you say, you are already retired and not working, as taking a taxable sum from your SIPP will limit you to making £10,000 in pension contributions per year - but I think this is not relevant to you.)

Crystallised funds are the taxable bit of the pension left over after someone has taken the tax free bit. So, if you have £100 in your pot and you only take out the £25 tax free portion, the rest stays in your account as "crystallised". All this means is, it is taxable whenever you take it out, even if it grows within the pension (eg, to £85 where the whole £85 is taxable not just the initial £75).

If you didn't want to take all of it - say, you wanted to take only £1,000 - you could take it as £250 tax free, £750 taxable. This would leave the remaining £2,600 in the pension and, if invested, could grow to a higher sum of which 25% is tax free, including the growth. This is called uncrystallised funds pension lump sum (UFPLS) https://www.ajbell.co.uk/faq/what-uncrystallised-funds-pension-lump-sum-ufpls . Again, I think not what you want to do.

That is why HL is asking you how you want to withdraw your pension because there are various options. But, for you, to keep it simple, it would appear the bit in bold is what you want.

otb666

@molerat Why 1397? I thought it would be 900.  as i only put 2880 in Sipp and you get 25% Tax free Thank you for your help i feel a bit tearful as this seems complicated I dont think i will do it again I only have a small pension otherwise £5,734.08 p.a.

xylophone

Are you aged 56?

You have claimed Marriage Allowance as here?

https://www.gov.uk/marriage-allowance

You opened a SIPP with Hl in the tax year 2022/3 and contributed £2,880.

The tax relief has now been applied  so that cash of £3,600 is now showing in the SIPP and you wish to withdraw the whole sum in one go?

I have been unable to set up a Nominated Bank account on line 

This is puzzling.

Presumably you made the contribution by debit card from your current account - what is the problem with setting up a nominated account to receive the proceeds?

At all events, you need to telephone HL again  and explain exactly what it is that you wish to do.

https://www.hl.co.uk/retirement/ufpls

You would then receive your illustration and could proceed as explained above.

£900 is the tax free pension commencement lump sum - the balance is taxable income.

Of the £2700 remaining,  £225 would be paid free of tax - the balance would be taxed at 20%.

Thus you would receive £900 + £225 + £1,980 = £3,105.

In your situation, you would have paid more tax on your income than you would be due to pay.

Re tax reclaim see

https://www.gov.uk/government/publications/income-tax-repayment-claim-when-small-pension-taken-as-a-lump-sum-p53

Dazed_and_C0nfused

Marriage Allowance seems to be sorted

i have 5575 available from my tax allowance 1130

otb666

@xylophone Yes i am 56 and I have a lower tax code 1130 due to marriage allowance.  I have a DB work pension 5734.08 pa and wanted to do the 2880-3600 dance and have to ring HL back after deciding whether I withdraw through a small pension payment or UFPLS

molerat

otb666 said:

@molerat Why 1397? I thought it would be 900.  as i only put 2880 in Sipp and you get 25% Tax free Thank you for your help i feel a bit tearful as this seems complicated I dont think i will do it again I only have a small pension otherwise £5,734.08 p.a.

There is £3600 in the SIPP.  On the first withdrawal tax will be deducted based on the emergency code of 1257LM1 which means £1048 is the tax allowance taking care of the 75% taxable so £1397 total.

The only messing around is in the first year.  It then becomes straight forward working out what you need to do each year.

Dazed_and_C0nfused

otb666 said:

@molerat Why 1397? I thought it would be 900.  as i only put 2880 in Sipp and you get 25% Tax free Thank you for your help i feel a bit tearful as this seems complicated I dont think i will do it again I only have a small pension otherwise £5,734.08 p.a.

Nothing to worry about, a bit of a hassle in the first year but given your relatively low other income you will end up with a £720 profit.

And can repeat each year possibly until your State Pension starts.  At which point the benefit will likely drop from £720 to £180.