Timing and Avoiding Emergency Tax on first pension withdrawl

Ciprico

My wife retired this year, earning about £3k before leaving the company.

To keep things simple we were thinking of withdrawing £8.5k plus TFLS sometime this year, and drawing £1047.50 + TFLS pcm from next April onwards...

She's with Hargreaves Lansdown.

It seems pension company's are very slow to do anything, so to pro-rata payments for the rest of this year, meaning starting on a specific date, would be risky...

Should she take a token pension withdrawal first to kick the tax code system into action before requesting the £8k5 to avoid being temporarily emergency taxed - if so, typically how long before requesting the £8k5 should we make this token withdrawal


Thanks in advance for any advice....

p00hsticks

I'm no expert but would have thought that unless she waits until then last month of the tax year (when she'll have all of her remaining unused tax free allowance in play) she's always going to end up paying some tax and having to reclaim it unless she waits until right at the end of the year....

dunstonh

It seems pension company's are very slow to do anything, so to pro-rata payments for the rest of this year, meaning starting on a specific date, would be risky...

Some are fast. Some are slow.

Should she take a token pension withdrawal first to kick the tax code system into action before requesting the £8k5 to avoid being temporarily emergency taxed - if so, typically how long before requesting the £8k5 should we make this token withdrawal

She could also give them her P45 to help reduce emergency tax.

The easiest way to avoid reclaiming tax is to run a small withdrawal in the March payroll.    However, it is easy to reclaim online and the money comes back in about 3 weeks (3 months if paper method used).  

zagfles

HMRC set the tax code not the pension company. The emergency tax code is 1257LX (or M1 instead of X, means the same) which means the first bit over £1000 will be tax free. After the first payment HMRC should allocate a proper cumulative tax code which will work on a year to date basis.

So even with a proper tax code if you take out large amount early in the tax year you'll still be overtaxed as you can only use your year to date allowance (eg 4/12th in July). But the refund is automatic in PAYE but you'd probably have to make token withdrawals to get the "payroll" system to run and process it.