Tax on a one-off withdrawal from drawdown

PharmaGiles

german_keeper said:

I started to take £300 per month from a DC pension last April. Strangely the first payment wasn't taxed, I had expected to pay 20%, but the second payment was taxed. I phoned HMRC and the chap explained it was down to a non cumulative code (I didn't know anything about cumulative and non cumulative codes - not bad for an ex HMRC employee!). So he just removed the X from the code and reissued it. I received the overpaid tax back from the pension provider the following month. Obviously a much smaller amount than yours but I don't see why the same principle wouldn't apply.

I expect if I were taking regular monthly amounts it would all get sorted within a month or two, but the problem seems to be the fact that it was a one-off. The system just doesn't seem to work properly in that situation, and now I have to reclaim the excess tax directly from HMRC.

Dazed_and_C0nfused

german_keeper said:

I started to take £300 per month from a DC pension last April. Strangely the first payment wasn't taxed, I had expected to pay 20%, but the second payment was taxed. I phoned HMRC and the chap explained it was down to a non cumulative code (I didn't know anything about cumulative and non cumulative codes - not bad for an ex HMRC employee!). So he just removed the X from the code and reissued it. I received the overpaid tax back from the pension provider the following month. Obviously a much smaller amount than yours but I don't see why the same principle wouldn't apply.

The op could probably get any overpaid tax back quickest by asking HMRC to issue the code on a cumulative basis and then taking say £1 extra taxable income (after 5 March).

Aegon would them automatically recalculate the tax due to month 12 of the tax year.

Taxable income of £7354 and code 700L would mean £69 tax was due so £2,009 would be refunded alongside the £1 extra pension income.

Op - this isn't something you discuss with Aegon, it's automatic once the appropriate tax code is in place.

molerat

The only way to get the correct tax deducted from a lump sum withdrawal which uses the full tax allowance is to ensure you do not have an X suffix code and make the withdrawal in March.

PharmaGiles

Dazed_and_C0nfused said:

german_keeper said:

I started to take £300 per month from a DC pension last April. Strangely the first payment wasn't taxed, I had expected to pay 20%, but the second payment was taxed. I phoned HMRC and the chap explained it was down to a non cumulative code (I didn't know anything about cumulative and non cumulative codes - not bad for an ex HMRC employee!). So he just removed the X from the code and reissued it. I received the overpaid tax back from the pension provider the following month. Obviously a much smaller amount than yours but I don't see why the same principle wouldn't apply.

The op could probably get any overpaid tax back quickest by asking HMRC to issue the code on a cumulative basis and then taking say £1 extra taxable income (after 5 March).

Aegon would them automatically recalculate the tax due to month 12 of the tax year.

Taxable income of £7354 and code 700L would mean £69 tax was due so £2,009 would be refunded alongside the £1 extra pension income.

Op - this isn't something you discuss with Aegon, it's automatic once the appropriate tax code is in place.

I discussed it initially with Aegon only because I didn't have the will to stay on hold on the phone to HMRC for an hour or more. In fact their explanation wasn't very good - the person I spoke to didn't seem to know anything about how tax codes work.

PharmaGiles

molerat said:

The only way to get the correct tax deducted from a lump sum withdrawal which uses the full tax allowance is to ensure you do not have an X suffix code and make the withdrawal in March.

I will bear that in mind in future!

Dazed_and_C0nfused

PharmaGiles said:

Dazed_and_C0nfused said:

german_keeper said:

I started to take £300 per month from a DC pension last April. Strangely the first payment wasn't taxed, I had expected to pay 20%, but the second payment was taxed. I phoned HMRC and the chap explained it was down to a non cumulative code (I didn't know anything about cumulative and non cumulative codes - not bad for an ex HMRC employee!). So he just removed the X from the code and reissued it. I received the overpaid tax back from the pension provider the following month. Obviously a much smaller amount than yours but I don't see why the same principle wouldn't apply.

The op could probably get any overpaid tax back quickest by asking HMRC to issue the code on a cumulative basis and then taking say £1 extra taxable income (after 5 March).

Aegon would them automatically recalculate the tax due to month 12 of the tax year.

Taxable income of £7354 and code 700L would mean £69 tax was due so £2,009 would be refunded alongside the £1 extra pension income.

Op - this isn't something you discuss with Aegon, it's automatic once the appropriate tax code is in place.

I discussed it initially with Aegon only because I didn't have the will to stay on hold on the phone to HMRC for an hour or more. In fact their explanation wasn't very good - the person I spoke to didn't seem to know anything about how tax codes work.

I suspect if you asked Aegon abou them making a tax refund they would tell you they can't do that and to contact HMRC.

But the reality is that they can make refunds, its just it's an automated process the phone advisers won't understand.

HMRC issue a cumulative tax code, replacing the non cumulative one and the first time Aegon operate it the tax position is recalculated by Aegon's payroll software.  If a refund is due they will simply pay that alongside the additional pension income.

I might be wrong but I wouldn't expect Aegon to operate a new tax code unless they were making a further (taxable) payment from that pension.  But it only needs to be £1.

PharmaGiles

Dazed_and_C0nfused said:

PharmaGiles said:

Dazed_and_C0nfused said:

german_keeper said:

I started to take £300 per month from a DC pension last April. Strangely the first payment wasn't taxed, I had expected to pay 20%, but the second payment was taxed. I phoned HMRC and the chap explained it was down to a non cumulative code (I didn't know anything about cumulative and non cumulative codes - not bad for an ex HMRC employee!). So he just removed the X from the code and reissued it. I received the overpaid tax back from the pension provider the following month. Obviously a much smaller amount than yours but I don't see why the same principle wouldn't apply.

The op could probably get any overpaid tax back quickest by asking HMRC to issue the code on a cumulative basis and then taking say £1 extra taxable income (after 5 March).

Aegon would them automatically recalculate the tax due to month 12 of the tax year.

Taxable income of £7354 and code 700L would mean £69 tax was due so £2,009 would be refunded alongside the £1 extra pension income.

Op - this isn't something you discuss with Aegon, it's automatic once the appropriate tax code is in place.

I discussed it initially with Aegon only because I didn't have the will to stay on hold on the phone to HMRC for an hour or more. In fact their explanation wasn't very good - the person I spoke to didn't seem to know anything about how tax codes work.

I suspect if you asked Aegon abou them making a tax refund they would tell you they can't do that and to contact HMRC.

But the reality is that they can make refunds, its just it's an automated process the phone advisers won't understand.

HMRC issue a cumulative tax code, replacing the non cumulative one and the first time Aegon operate it the tax position is recalculated by Aegon's payroll software.  If a refund is due they will simply pay that alongside the additional pension income.

I might be wrong but I wouldn't expect Aegon to operate a new tax code unless they were making a further (taxable) payment from that pension.  But it only needs to be £1.

Well, I have made a repayment claim with HMRC, which is what Aegon and my IFA advised, so I will wait for that to play out now. At least I now understand why this happened, and can hopefully avoid it happening in future, so thanks to all who chipped in.

Dazed_and_C0nfused

PharmaGiles said:

Dazed_and_C0nfused said:

PharmaGiles said:

Dazed_and_C0nfused said:

german_keeper said:

I started to take £300 per month from a DC pension last April. Strangely the first payment wasn't taxed, I had expected to pay 20%, but the second payment was taxed. I phoned HMRC and the chap explained it was down to a non cumulative code (I didn't know anything about cumulative and non cumulative codes - not bad for an ex HMRC employee!). So he just removed the X from the code and reissued it. I received the overpaid tax back from the pension provider the following month. Obviously a much smaller amount than yours but I don't see why the same principle wouldn't apply.

The op could probably get any overpaid tax back quickest by asking HMRC to issue the code on a cumulative basis and then taking say £1 extra taxable income (after 5 March).

Aegon would them automatically recalculate the tax due to month 12 of the tax year.

Taxable income of £7354 and code 700L would mean £69 tax was due so £2,009 would be refunded alongside the £1 extra pension income.

Op - this isn't something you discuss with Aegon, it's automatic once the appropriate tax code is in place.

I discussed it initially with Aegon only because I didn't have the will to stay on hold on the phone to HMRC for an hour or more. In fact their explanation wasn't very good - the person I spoke to didn't seem to know anything about how tax codes work.

I suspect if you asked Aegon abou them making a tax refund they would tell you they can't do that and to contact HMRC.

But the reality is that they can make refunds, its just it's an automated process the phone advisers won't understand.

HMRC issue a cumulative tax code, replacing the non cumulative one and the first time Aegon operate it the tax position is recalculated by Aegon's payroll software.  If a refund is due they will simply pay that alongside the additional pension income.

I might be wrong but I wouldn't expect Aegon to operate a new tax code unless they were making a further (taxable) payment from that pension.  But it only needs to be £1.

Well, I have made a repayment claim with HMRC, which is what Aegon and my IFA advised, so I will wait for that to play out now. At least I now understand why this happened, and can hopefully avoid it happening in future, so thanks to all who chipped in.

Don't be too surprised if that repayment claim is never actioned.

HMRC have a process to automatically refund any overpaid tax and that may well have kicked in long before your claim gets to the top of the queue!!

https://www.gov.uk/tax-overpayments-and-underpayments

PharmaGiles

Dazed_and_C0nfused said:

PharmaGiles said:

Dazed_and_C0nfused said:

PharmaGiles said:

Dazed_and_C0nfused said:

german_keeper said:

I started to take £300 per month from a DC pension last April. Strangely the first payment wasn't taxed, I had expected to pay 20%, but the second payment was taxed. I phoned HMRC and the chap explained it was down to a non cumulative code (I didn't know anything about cumulative and non cumulative codes - not bad for an ex HMRC employee!). So he just removed the X from the code and reissued it. I received the overpaid tax back from the pension provider the following month. Obviously a much smaller amount than yours but I don't see why the same principle wouldn't apply.

The op could probably get any overpaid tax back quickest by asking HMRC to issue the code on a cumulative basis and then taking say £1 extra taxable income (after 5 March).

Aegon would them automatically recalculate the tax due to month 12 of the tax year.

Taxable income of £7354 and code 700L would mean £69 tax was due so £2,009 would be refunded alongside the £1 extra pension income.

Op - this isn't something you discuss with Aegon, it's automatic once the appropriate tax code is in place.

I discussed it initially with Aegon only because I didn't have the will to stay on hold on the phone to HMRC for an hour or more. In fact their explanation wasn't very good - the person I spoke to didn't seem to know anything about how tax codes work.

I suspect if you asked Aegon abou them making a tax refund they would tell you they can't do that and to contact HMRC.

But the reality is that they can make refunds, its just it's an automated process the phone advisers won't understand.

HMRC issue a cumulative tax code, replacing the non cumulative one and the first time Aegon operate it the tax position is recalculated by Aegon's payroll software.  If a refund is due they will simply pay that alongside the additional pension income.

I might be wrong but I wouldn't expect Aegon to operate a new tax code unless they were making a further (taxable) payment from that pension.  But it only needs to be £1.

Well, I have made a repayment claim with HMRC, which is what Aegon and my IFA advised, so I will wait for that to play out now. At least I now understand why this happened, and can hopefully avoid it happening in future, so thanks to all who chipped in.

Don't be too surprised if that repayment claim is never actioned.

HMRC have a process to automatically refund any overpaid tax and that may well have kicked in long before your claim gets to the top of the queue!!

You may well be right, although they do have a form specifically for claiming tax repayments on one-off pension withdrawals, so it appears this is a common issue.