Phoenix Life

SueP19

dunstonh 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% 

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.

  

Its not pro-rata 40% as he's under the 40% threshold even with lump sum and besides they aren't party to his earnings either
I've tried to think of why they would apportion in this way but failed (20/40 split) All I could think of was they had an internal standard "other income" figure they use and 29% is the average
If he'd just said that assumptions of income were made then fine but he said not 

dunstonh

Its not pro-rata 40% as he's under the 40% threshold even with lump sum and besides they aren't party to his earnings either

It is pro-rata, as emergency tax assumes that it will become the new monthly payment for the remainder of the tax year. This is how PAYE works and has always worked.

For example, 
£30k drawn is worked out by the following slices:
£7,500 TFC leaves £22,500 taxable
£1047.50 falls within the 0% tax band (personal allowance) = £0
£3141.67 falls within 20% = £628.33
£7286.67 falls within 40% = £2914.67
£11024.17 falls within 45% = £4960.88
Total emergency tax £8503.88


They don't need to be a party to his earnings as it's emergency tax.  Not a continuation with a P45 supplied.

SueP19

dunstonh said:

Its not pro-rata 40% as he's under the 40% threshold even with lump sum and besides they aren't party to his earnings either

It is pro-rata, as emergency tax assumes that it will become the new monthly payment for the remainder of the tax year. This is how PAYE works and has always worked.

For example, 
£30k drawn is worked out by the following slices:
£7,500 TFC leaves £22,500 taxable
£1047.50 falls within the 0% tax band (personal allowance) = £0
£3141.67 falls within 20% = £628.33
£7286.67 falls within 40% = £2914.67
£11024.17 falls within 45% = £4960.88
Total emergency tax £8503.88


They don't need to be a party to his earnings as it's emergency tax.  Not a continuation with a P45 supplied.

 I hadn't contemplated that under PAYE it would be seen as repeatable income 
Just done the calculations and I have a difference of 49p 
Thank you, it was all I wanted, an explanation 

xylophone

I hadn't contemplated that under PAYE it would be seen as repeatable income 

In my  previous post above

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. 

Marcon

SueP19 said:

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 

Did you actually bother to follow the link I gave, which would have provided a full explanation? Two other people also answered your question but you don't seem to have taken their helpful responses into account either. It is frustrating for you if you don't understand something in the hopelessly complicated world of pensions, but also more than a tad frustrating when no attention is given to helpful answers.

Dazed_and_C0nfused

Marcon said:

SueP19 said:

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 

Did you actually bother to follow the link I gave, which would have provided a full explanation? Two other people also answered your question but you don't seem to have taken their helpful responses into account either. It is frustrating for you if you don't understand something in the hopelessly complicated world of pensions, but also more than a tad frustrating when no attention is given to helpful answers.

Deserves a 👏