What tax will a self employed person pay when withdrawing from pension pot

Jayneyw

Hi all, my husband will be 55 end of this week and he is looking to take a lump sum from his pension pot. He is a sole trader self employed tattoo artist. With PAYE the lump sum you request from your pension provider gets added to your PAYE income and taxed accordingly. However, being self employed your income differs year to year so you wont have the same income. So my question is after the 25% tax free would the rest be taxed using the basic 20% tax rate?

molerat

He will be taxed according to his total income for the year.  What tax may be actually deducted from the pension depends on several factors, a lump sum will be taxed at 1257LX meaning he may be due a refund or have to pay more tax.  It will all be sorted out when he submits his SA for the year.

Marcon

Jayneyw said:

Hi all, my husband will be 55 end of this week and he is looking to take a lump sum from his pension pot. He is a sole trader self employed tattoo artist. With PAYE the lump sum you request from your pension provider gets added to your PAYE income and taxed accordingly. However, being self employed your income differs year to year so you wont have the same income. So my question is after the 25% tax free would the rest be taxed using the basic 20% tax rate?

If he takes just a small amount from his pension as his first withdrawal, that'll spur(!) HMRC into sending the pension provider a tax code to apply to his pension (he can keep track in his personal tax account https://www.gov.uk/personal-tax-account to check when this has been done). If he then takes a substantial withdrawal, that should go a long way to ensuring he isn't heavily overtaxed by having an emergency code applied to the 'substantial' withdrawal. See https://techzone.abrdn.com/public/pensions/pensions-emergency-tax-article

NannaH

If he’s taking a Tax Free Lump Sum of 25% of his pot or less, that will have no bearing on his tax code at all.
Is he planning on taking more than the usual 25% lump sum?
If he was planning on taking say 35%,  only 10% would be taxed at 20%,  assuming he’s a basic rate tax payer.  

If that extra 10% was,  say £10k, it would get added to his taxable self employed earnings so he has to be careful it wouldn’t put him into 40% tax.  Spreading it as regular income over two tax years might be an option for anything over the tax free amount.  

Dazed_and_C0nfused

What tax will a self employed person pay when withdrawing from pension pot

The same as someone who isn't self employed.

It will all come out in the wash when he completes his Self Assessment return.

Jayneyw

Thanks all for your comments. Very much appreciated