Taking Cash From Drawdown Pension Pot

Hi, I have a question about drawdown if anyone could help or has done the same thing.

I have taken the 25% tax free cash from a SIPP with Hargreaves Lansdown and now have a drawdown pension pot which I have not yet taken any money from. I am intending to take £1,000 each month, starting in the new tax year, and as 12 x £1,000 = £12,000 will be below my personal tax allowance there should be no tax liability as I won't have any other taxable income.

So my question is:

1) Will HL send me the £1,000 each month and as the total amount over the tax year is less than my personal allowance, there will be nothing else for me to do. No completing a tax return at the end of the year or needing to notify HMRC in any way

Or

2) Will HL deduct 20% tax so I only get £800 each month and I will need to complete a tax return at the end of the year to claim back the overpaid tax. If so, what are the mechanics of doing this. I.e. date to complete tax return, forms to fill, how long it takes etc.

I'm hoping it's 1) as that is a lot less hassle, but I'm guessing others must have done similar so their knowledge based on experience would be a help here.

I do have a government gateway account if that is relevant.

Thanks

Comments

  • handful
    handful Posts: 546 Forumite
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    I believe you start on an emergency tax code and they calculate what your annual earnings will be by multiplying the first amount by 12. So if you have the normal PA of £12.5k you shouldn't have tax deducted. This is only my belief, someone more knowledgable will be along soon!

  • Dazed_and_C0nfused
    Dazed_and_C0nfused Posts: 13,395 Forumite
    First Anniversary First Post Name Dropper
    edited 22 March at 11:23AM
    If each taxable payment is £1,000 and you don't have any other taxable income which might impact things then you wouldn't have any tax deducted at source by HL.

    They will use the emergency tax code (1257L) on the first payment and this will be on a non cumulative basis.

    Once HMRC get details of the first payment they will review things and usually issue an updated tax code.  Which may well still be 1257L but on a cumulative basis 

    If you receive (non cash ISA) untaxed interest then they may reduce your tax code allowances as this uses any spare allowances but if your pension is expected to be £12,000 you shouldn't end up with a code lower than 1200L.
  • ColdIron
    ColdIron Posts: 9,001 Forumite
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    I did exactly what you want to do and it's 1)
  • Mr.Generous
    Mr.Generous Posts: 3,365 Forumite
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    I am due to take my first payment in April and the tax office notified me yesterday of a change in my tax code ahead of the first payment, so I guess the pension provider has let HMRC know in advance of the payment. Your provider will be very experienced at dealing with your question - they won't mind if you ask them and get a definitive answer.
  • Albermarle
    Albermarle Posts: 21,993 Forumite
    First Anniversary First Post Name Dropper
    I am due to take my first payment in April and the tax office notified me yesterday of a change in my tax code ahead of the first payment, so I guess the pension provider has let HMRC know in advance of the payment. Your provider will be very experienced at dealing with your question - they won't mind if you ask them and get a definitive answer.
    That would be quite unusual. It is normally the first payment that triggers the process. I have not heard of pension providers informing HMRC in advance of the first payments, but maybe it can happen.
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