Personal Pension tax, how does it work?

Sharkb0y

If you're under state pension age and drawdown £12,000 per year, which is also under the personal allowance and you have no other form of income, does the pension company tax you at 20% and then you have to claim it back from HMRC? 

dunstonh

Sharkb0y said:

If you're under state pension age and drawdown £12,000 per year, which is also under the personal allowance and you have no other form of income, does the pension company tax you at 20% and then you have to claim it back from HMRC? 

If set up monthly, your first payment could be taxed depending on when in the year it starts.   However, by the second payment, the tax code would be allocated and any tax refunded.   The 75% chunk is paid via payroll and follows PAYE rules/methods.

If you start the monthly drawdown in month 12 of payroll (march), there are issues.  you would need to claim that back from HMRC.   If you take it annually, you would need to claim it back too (or do a split withdrawal with a second amount in month 12 of payroll)

Albermarle

Sharkb0y said:

If you're under state pension age and drawdown £12,000 per year, which is also under the personal allowance and you have no other form of income, does the pension company tax you at 20% and then you have to claim it back from HMRC? 

To begin with yes, but when they get the correct tax code from HMRC, they should not take tax anymore.

Sharkb0y

dunstonh said:

Sharkb0y said:

If you're under state pension age and drawdown £12,000 per year, which is also under the personal allowance and you have no other form of income, does the pension company tax you at 20% and then you have to claim it back from HMRC? 

If set up monthly, your first payment could be taxed depending on when in the year it starts.   However, by the second payment, the tax code would be allocated and any tax refunded.   The 75% chunk is paid via payroll and follows PAYE rules/methods.

If you start the monthly drawdown in month 12 of payroll (march), there are issues.  you would need to claim that back from HMRC.   If you take it annually, you would need to claim it back too (or do a split withdrawal with a second amount in month 12 of payroll)

Thank you, that's helpful to know. I plan on starting in April so month 1 of the payroll year.