Phoenix Life

SueP19

Hubby has a small pension he wishes to cash out
We have the cash out information which states value of 25% tax free and value of tax deducted at source

The query is the tax element is 29% not 20% 
I've contacted the pension company who, basically, have been vague on why its 29%, hiding behind he could be a higher tax payer, when I debunked this by saying that if they felt it was more appropriate to charge as if he was higher rate it would be 40% not 29%
The best answer I received was a "well you can claim it back" along with "its not set by us" 
At that point he became defensive in tone so I backed down without a satisfactory answer

My point, does anyone know why they are charging 29% tax on behalf of HMRC, it it simply what they do

Malthusian

This is "emergency tax".

To oversimplify, the Pay As You Earn system is designed to tax regular monthly payments and does not cope well with lump sums. Often the pension provider will (under instruction from HMRC) allocate 1/12th of your allowances and tax bands to the whole payment, as if you were going to be paid that sum every month.

They are taxing him at 29% on the assumption that he is due to pay 20% tax on just over half the payment and 40% tax on the other half.

SueP19 said:

The best answer I received was a "well you can claim it back" along with "its not set by us" 

That was a correct answer. To claim it back he needs to file a P53Z form with HMRC.

Marcon

SueP19 said:

Hubby has a small pension he wishes to cash out
We have the cash out information which states value of 25% tax free and value of tax deducted at source

The query is the tax element is 29% not 20% 
I've contacted the pension company who, basically, have been vague on why its 29%, hiding behind he could be a higher tax payer, when I debunked this by saying that if they felt it was more appropriate to charge as if he was higher rate it would be 40% not 29%
The best answer I received was a "well you can claim it back" along with "its not set by us" 
At that point he became defensive in tone so I backed down without a satisfactory answer

My point, does anyone know why they are charging 29% tax on behalf of HMRC, it it simply what they do

Not surprised the poor chap became defensive when he'd given you the correct answers/how to remedy the situation (ie claim back tax from HMRC) and you were still not accepting them.

As he told you, it isn't for the pension provider to arbitrarily set the tax deducted; they have to follow HMRC requirements. The issue of 'over deduction' crops up time and time again, both on this website and in the media.

See https://www.moneysavingexpert.com/reclaim/overpaid-pension-tax/

xylophone

What exactly does the letter show?

https://www.royallondon.com/guides-tools/pension-guides/pension-basics/how-your-pension-is-taxed/

When you request money from your pension pot (outside your tax-free cash element), your provider takes off any tax due on any taxable part of the payment before you receive it.

The first time you take a lump sum (apart from the tax-free lump sum) from your pension, you may well find you are charged too much tax. This is because most initial lump sum payments are taxed using an emergency tax code. This means you’re taxed as if you made the same lump sum withdrawal every month of the tax year. You can claim back any overpaid tax by using the forms on www.gov.uk/claim-tax-refund. 

SueP19

Malthusian said:

This is "emergency tax".

To oversimplify, the Pay As You Earn system is designed to tax regular monthly payments and does not cope well with lump sums. Often the pension provider will (under instruction from HMRC) allocate 1/12th of your allowances and tax bands to the whole payment, as if you were going to be paid that sum every month.

They are taxing him at 29% on the assumption that he is due to pay 20% tax on just over half the payment and 40% tax on the other half.

SueP19 said:

The best answer I received was a "well you can claim it back" along with "its not set by us" 

That was a correct answer. To claim it back he needs to file a P53Z form with HMRC.

Not heard of a tax rate at 29%, double checked HMRC and both basic rate and emergency tax rate are 20% 

Marcon

SueP19 said:

Malthusian said:

This is "emergency tax".

To oversimplify, the Pay As You Earn system is designed to tax regular monthly payments and does not cope well with lump sums. Often the pension provider will (under instruction from HMRC) allocate 1/12th of your allowances and tax bands to the whole payment, as if you were going to be paid that sum every month.

They are taxing him at 29% on the assumption that he is due to pay 20% tax on just over half the payment and 40% tax on the other half.

SueP19 said:

The best answer I received was a "well you can claim it back" along with "its not set by us" 

That was a correct answer. To claim it back he needs to file a P53Z form with HMRC.

Not heard of a tax rate at 29%, double checked HMRC and both basic rate and emergency tax rate are 20% 

Some of the taxable part was taxed at 20%, some at 40%. See info above.

SueP19

Marcon said:

SueP19 said:

Hubby has a small pension he wishes to cash out
We have the cash out information which states value of 25% tax free and value of tax deducted at source

The query is the tax element is 29% not 20% 
I've contacted the pension company who, basically, have been vague on why its 29%, hiding behind he could be a higher tax payer, when I debunked this by saying that if they felt it was more appropriate to charge as if he was higher rate it would be 40% not 29%
The best answer I received was a "well you can claim it back" along with "its not set by us" 
At that point he became defensive in tone so I backed down without a satisfactory answer

My point, does anyone know why they are charging 29% tax on behalf of HMRC, it it simply what they do

Not surprised the poor chap became defensive when he'd given you the correct answers/how to remedy the situation (ie claim back tax from HMRC) and you were still not accepting them.

As he told you, it isn't for the pension provider to arbitrarily set the tax deducted; they have to follow HMRC requirements. The issue of 'over deduction' crops up time and time again, both on this website and in the media.

See https://www.moneysavingexpert.com/reclaim/overpaid-pension-tax/

Why poor? Its a perfectly reasonable question, basic rate is 20%
All the other pension calculators gave the figure i had estimated 

HillsideRetired

SueP19 said:

Malthusian said:

This is "emergency tax".

To oversimplify, the Pay As You Earn system is designed to tax regular monthly payments and does not cope well with lump sums. Often the pension provider will (under instruction from HMRC) allocate 1/12th of your allowances and tax bands to the whole payment, as if you were going to be paid that sum every month.

They are taxing him at 29% on the assumption that he is due to pay 20% tax on just over half the payment and 40% tax on the other half.

SueP19 said:

The best answer I received was a "well you can claim it back" along with "its not set by us" 

That was a correct answer. To claim it back he needs to file a P53Z form with HMRC.

Not heard of a tax rate at 29%, double checked HMRC and both basic rate and emergency tax rate are 20% 

they always add a bit more on ... very easy to claim back can all be done on line . takes about 5 to 6 weeks for the tax to appear in your account .. from my experience this year 

SueP19

xylophone said:

What exactly does the letter show?

https://www.royallondon.com/guides-tools/pension-guides/pension-basics/how-your-pension-is-taxed/

When you request money from your pension pot (outside your tax-free cash element), your provider takes off any tax due on any taxable part of the payment before you receive it.

The first time you take a lump sum (apart from the tax-free lump sum) from your pension, you may well find you are charged too much tax. This is because most initial lump sum payments are taxed using an emergency tax code. This means you’re taxed as if you made the same lump sum withdrawal every month of the tax year. You can claim back any overpaid tax by using the forms on www.gov.uk/claim-tax-refund. 

It shows a  surrenderable pension figure, followed by a 25% tax free figure then a tax deducted figure which is 29% of the 75% balance 

dunstonh

SueP19 said:

Malthusian said:

This is "emergency tax".

To oversimplify, the Pay As You Earn system is designed to tax regular monthly payments and does not cope well with lump sums. Often the pension provider will (under instruction from HMRC) allocate 1/12th of your allowances and tax bands to the whole payment, as if you were going to be paid that sum every month.

They are taxing him at 29% on the assumption that he is due to pay 20% tax on just over half the payment and 40% tax on the other half.

SueP19 said:

The best answer I received was a "well you can claim it back" along with "its not set by us" 

That was a correct answer. To claim it back he needs to file a P53Z form with HMRC.

Not heard of a tax rate at 29%, double checked HMRC and both basic rate and emergency tax rate are 20% 

Emergency tax will be what it is going to be based on the month it is taken and the amounts involved.     It would only be 20% if the whole amount pro-rata over the remainder of the tax year falls within the basic rate band.

It is clear, when you mention 29%, that some of the value is falling within the higher rate band.   With tax, you do not get chargely solely 20% or suddenly 40%%.   It is charged in slices.     So, you get so much charged at 20%, then so much charged at 40%.   You have chosen to average out the two to give you 29%.  Thats fine for your own head but its not a 29% tax rate.

  

SueP19

HillsideRetired said:

SueP19 said:

Malthusian said:

This is "emergency tax".

To oversimplify, the Pay As You Earn system is designed to tax regular monthly payments and does not cope well with lump sums. Often the pension provider will (under instruction from HMRC) allocate 1/12th of your allowances and tax bands to the whole payment, as if you were going to be paid that sum every month.

They are taxing him at 29% on the assumption that he is due to pay 20% tax on just over half the payment and 40% tax on the other half.

SueP19 said:

The best answer I received was a "well you can claim it back" along with "its not set by us" 

That was a correct answer. To claim it back he needs to file a P53Z form with HMRC.

Not heard of a tax rate at 29%, double checked HMRC and both basic rate and emergency tax rate are 20% 

they always add a bit more on ... very easy to claim back can all be done on line . takes about 5 to 6 weeks for the tax to appear in your account .. from my experience this year 

Thank you, I have no issues claiming it back, a bit tedious and time consuming
Just wondered why and if it was common place