Taking UFPLS from SIPP

Audaxer

My wife is planning to take a UFPLS from her SIPP for the first time, to utilise her personal allowance for this tax year. Her tax free allowance is £11,310 as her Marriage Allowance of £1,260 has been transferred to me. As she has not used any of her personal allowance this tax year, I have calculated that she should be able to take a maximum of £15,080 as a UFPLS without being liable for any tax. I'd be pleased if you could confirm if that calculation is correct.

She has already contributed £2,880 net (£3,600 gross) to her SIPP earlier this tax year, but I don't think that affects the amount she can withdraw without being liable for tax? 

Notepad_Phil

Your figure is correct (15080 x 0.75 = 11310) and the contribution will effect nothing, but as this is the first time of access she will be taxed at the emergency tax code of 1257L/M1. The excess tax will be able to be recovered by your wife, or if she leaves it then the HMRC will eventually figure it out and rebate her when they reconcile her tax later in the year.

Depending on your provider you might have time enough to do a small ufpls now (do less than a thousand and no tax will be taken) so that a tax code will be sent so that your next ufpls has a more realistic amount of tax taken off (hopefully zero if the hmrc get the tax code right).

Audaxer

Notepad_Phil said:

Your figure is correct (15080 x 0.75 = 11310) and the contribution will effect nothing, but as this is the first time of access she will be taxed at the emergency tax code of 1257L/M1. The excess tax will be able to be recovered by your wife, or if she leaves it then the HMRC will eventually figure it out and rebate her when they reconcile her tax later in the year.

Depending on your provider you might have time enough to do a small ufpls now (do less than a thousand and no tax will be taken) so that a tax code will be sent so that your next ufpls has a more realistic amount of tax taken off (hopefully zero if the hmrc get the tax code right).

Thanks for your response. I had thought an emergency tax code was only applied if a large UFPLS was taken earlier in the tax year, in that the system assumed that amount would be taken every month? I thought it would be okay if the one UFPLS was taken in the last month of the tax year.

Dazed_and_C0nfused

Audaxer said:

Notepad_Phil said:

Your figure is correct (15080 x 0.75 = 11310) and the contribution will effect nothing, but as this is the first time of access she will be taxed at the emergency tax code of 1257L/M1. The excess tax will be able to be recovered by your wife, or if she leaves it then the HMRC will eventually figure it out and rebate her when they reconcile her tax later in the year.

Depending on your provider you might have time enough to do a small ufpls now (do less than a thousand and no tax will be taken) so that a tax code will be sent so that your next ufpls has a more realistic amount of tax taken off (hopefully zero if the hmrc get the tax code right).

Thanks for your response. I had thought an emergency tax code was only applied if a large UFPLS was taken earlier in the tax year, in that the system assumed that amount would be taken every month? I thought it would be okay if the one UFPLS was taken in the last month of the tax year.

The emergency code (1257L) is always used on the first payment.

HMRC will automatically refund any excess tax deducted later this summer.

Audaxer

Dazed_and_C0nfused said:

Audaxer said:

Notepad_Phil said:

Your figure is correct (15080 x 0.75 = 11310) and the contribution will effect nothing, but as this is the first time of access she will be taxed at the emergency tax code of 1257L/M1. The excess tax will be able to be recovered by your wife, or if she leaves it then the HMRC will eventually figure it out and rebate her when they reconcile her tax later in the year.

Depending on your provider you might have time enough to do a small ufpls now (do less than a thousand and no tax will be taken) so that a tax code will be sent so that your next ufpls has a more realistic amount of tax taken off (hopefully zero if the hmrc get the tax code right).

Thanks for your response. I had thought an emergency tax code was only applied if a large UFPLS was taken earlier in the tax year, in that the system assumed that amount would be taken every month? I thought it would be okay if the one UFPLS was taken in the last month of the tax year.

The emergency code (1257L) is always used on the first payment.

HMRC will automatically refund any excess tax deducted later this summer.

Thanks. Does that mean that £11,310 less one month's personal allowance, will initially be taxed at 20%?

Notepad_Phil

Audaxer said:

Dazed_and_C0nfused said:

Audaxer said:

Notepad_Phil said:

Your figure is correct (15080 x 0.75 = 11310) and the contribution will effect nothing, but as this is the first time of access she will be taxed at the emergency tax code of 1257L/M1. The excess tax will be able to be recovered by your wife, or if she leaves it then the HMRC will eventually figure it out and rebate her when they reconcile her tax later in the year.

Depending on your provider you might have time enough to do a small ufpls now (do less than a thousand and no tax will be taken) so that a tax code will be sent so that your next ufpls has a more realistic amount of tax taken off (hopefully zero if the hmrc get the tax code right).

Thanks for your response. I had thought an emergency tax code was only applied if a large UFPLS was taken earlier in the tax year, in that the system assumed that amount would be taken every month? I thought it would be okay if the one UFPLS was taken in the last month of the tax year.

The emergency code (1257L) is always used on the first payment.

HMRC will automatically refund any excess tax deducted later this summer.

Thanks. Does that mean that £11,310 less one month's personal allowance, will initially be taxed at 20%?

Not sure of exact tax rates used but https://www.hl.co.uk/retirement/preparing/tax-matters/emergency-calculator indicates £3,476.67 of tax.

molerat

Audaxer said:

Thanks. Does that mean that £11,310 less one month's personal allowance, will initially be taxed at 20%?

No, 40% tax starts at £3142 on top of your allowance.

So £1048.26 will be tax free, £3142 taxed at 20% and £7119.74 taxed at 40%.  A total of £3476.06 tax deducted.  You are only £168 shy of the 45% band

Audaxer

Notepad_Phil said:

Audaxer said:

Dazed_and_C0nfused said:

Audaxer said:

Notepad_Phil said:

Your figure is correct (15080 x 0.75 = 11310) and the contribution will effect nothing, but as this is the first time of access she will be taxed at the emergency tax code of 1257L/M1. The excess tax will be able to be recovered by your wife, or if she leaves it then the HMRC will eventually figure it out and rebate her when they reconcile her tax later in the year.

Depending on your provider you might have time enough to do a small ufpls now (do less than a thousand and no tax will be taken) so that a tax code will be sent so that your next ufpls has a more realistic amount of tax taken off (hopefully zero if the hmrc get the tax code right).

Thanks for your response. I had thought an emergency tax code was only applied if a large UFPLS was taken earlier in the tax year, in that the system assumed that amount would be taken every month? I thought it would be okay if the one UFPLS was taken in the last month of the tax year.

The emergency code (1257L) is always used on the first payment.

HMRC will automatically refund any excess tax deducted later this summer.

Thanks. Does that mean that £11,310 less one month's personal allowance, will initially be taxed at 20%?

Not sure of exact tax rates used but https://www.hl.co.uk/retirement/preparing/tax-matters/emergency-calculator indicates £2,345.67 of tax.

Thanks for the link to the calculator. It appears that you have to put in the full UFPLS amount of £15,080 as it then shows that it includes the tax free amount of £3,770. It calculates the tax at £3,476.67, which is even higher meaning some of the £11,310 is being taxed at 40%.

Oh well, she will just have to do it and claim it back, as I don't think we have got time to do a smaller UFPLS first as both would have to be done by 11 March (according to our provider) to get the UFPLS through before the end of the tax year.

Audaxer

molerat said:

Audaxer said:

Thanks. Does that mean that £11,310 less one month's personal allowance, will initially be taxed at 20%?

No, 40% tax starts at £3142 on top of your allowance.

So £1048.26 will be tax free, £3142 taxed at 20% and £7119.74 taxed at 40%.  A total of £3476.06 tax deducted.  You are only £168 shy of the 45% band

Thanks. Will she be able to phone HMRC to claim the tax back just after it is paid, or will she have to wait for HMRC to automatically refund it several months later?

Dazed_and_C0nfused

Audaxer said:

Dazed_and_C0nfused said:

Audaxer said:

Notepad_Phil said:

Your figure is correct (15080 x 0.75 = 11310) and the contribution will effect nothing, but as this is the first time of access she will be taxed at the emergency tax code of 1257L/M1. The excess tax will be able to be recovered by your wife, or if she leaves it then the HMRC will eventually figure it out and rebate her when they reconcile her tax later in the year.

Depending on your provider you might have time enough to do a small ufpls now (do less than a thousand and no tax will be taken) so that a tax code will be sent so that your next ufpls has a more realistic amount of tax taken off (hopefully zero if the hmrc get the tax code right).

Thanks for your response. I had thought an emergency tax code was only applied if a large UFPLS was taken earlier in the tax year, in that the system assumed that amount would be taken every month? I thought it would be okay if the one UFPLS was taken in the last month of the tax year.

The emergency code (1257L) is always used on the first payment.

HMRC will automatically refund any excess tax deducted later this summer.

Thanks. Does that mean that £11,310 less one month's personal allowance, will initially be taxed at 20%?

No, you get one month's worth of the emergency tax code allowances (12,579) and one months worth of the basic rate and higher rate bands and then anything above that will be taxed at 45%.

Xbigman

Go into your wife's personal tax account (under PAYE I think) and set where you want you tax code applied to. They should then send the SIPP provider a tax code so a withdrawal in the last month of the tax year should take no tax. But you've left it tight to do that. 
I adjust my tax code placings like this each April (but I've usually forgotten what I did last time and have to work it out again) as my DB pension increases.

Incidentally, my second UFPLS withdrawal was a nightmare of lost paperwork and soggy envelopes that took six weeks. If I wanted to make a withdrawal in the last month of the tax year I'd have everything filled out, signed and in the post on the 5th March just in case.



Darren