will i pay tax on personal pension drawdown when I am below income tax threshold?

stopthetories

When I retire later this year my occupational pension will be just £4000 / yr until 2030, when i will start to get the state pension.  I have a personal pension with £50K in it.  If i draw down £8K a year will I pay zero income tax on it (as I will be below the income tax threshold)? 

Silvertabby

Yes and no.  Unless your drawdown pension provider has a tax code to work with, they will deduct tax from your £8K - but you will then be able to claim it back from HMRC.  

Nothing new - this has been SOP for years.

Marcon

Silvertabby said:

Yes and no.  Unless your drawdown pension provider has a tax code to work with, they will deduct tax from your £8K - but you will then be able to claim it back from HMRC.  

Nothing new - this has been SOP for years.

...but only if you've taken the full 25% tax free lump sum from your personal pension at the outset. If you don't take any tax free cash at the start, 25% of each withdrawal would be tax free - so you could take out more without paying tax. That might make sense, because otherwise you'd be losing the benefit of some of your annual personal allowance.

stopthetories

Thanks for this both, that's really useful.  Does that mean I'd need to fill in a self assessment tax return to claim the tax back?  And it would end up being almost a year in arrears?

MallyGirl

no need for self assessment - it will get recalculated automatically at year end. If you wanted it sorted before then you would have to contact HMRC

Dazed_and_C0nfused

stopthetories said:

Thanks for this both, that's really useful.  Does that mean I'd need to fill in a self assessment tax return to claim the tax back?  And it would end up being almost a year in arrears?

If you two pensions paid under PAYE then there should be no need to claim anything back, or wait for HMRC.

When you start getting the second pension HMRC will review your tax code and allocate spare allowances to your new pension.

So assuming you haven't applied for Marriage Allowance and have the standard Personal Allowance of £12,570 there would be no tax payable on either the £4k or £8k.

You might have tax codes of say 457L (existing pension) and 800T (new pension).  You can update things on your Personal Tax Account to get the desired outcome.

It would be different if you took the whole £8k in one go and no further payments in the same tax year.

Albermarle

MallyGirl said:

no need for self assessment - it will get recalculated automatically at year end. If you wanted it sorted before then you would have to contact HMRC

For clarity ' year end' usually means around September following the end of the tax year.

sheramber

Are you intending drawing down a lump sum of £8k or 1/12 each month?

A lump sum would be taxed but a monthly drawdown would be given a code number allowing it to be paid without any tax being deducted.