UFPLS - Tax

DE_612183

Hi, If i use UFPLS to take periodic lump sums - does the lump sum get taxed at the rate of 75% is taxable ( and if so what rate gets applied? )

Steve_666_

The first 25 is tax free, and the remaining 75% is treated as income and taxed appropriately. If you are currently a 40% tax payer, then it will be taxed at 40%, if large enough it may push you into the 45% band. if you have no other income, the first 12K will be untaxed.

Audaxer

My wife took a fairly large UFPLS in March (last tax year) and despite no other income, some of it got taxed at 40% because the system assumes that is a monthly withdrawal. However all the tax deducted was automatically re-credited to her earlier this month. 

cloud_dog

DE_612183 said:

Hi, If i use UFPLS to take periodic lump sums - does the lump sum get taxed at the rate of 75% is taxable ( and if so what rate gets applied? )

It will function in exactly the same way as PAYE.  

If no tax code it would go onM1 (emergency) tax.

Even with a tax code, PAYE would interpret it as a single months income and would extrapolate out for the remained of the year.  Obviously, it would try to correct itself under normal (monthly) payment circumstances, but you won't be receiving any more payments.

I think you can reclaim the tax using HMRC form P55 (although it may be form P50 depending on specifics).

squirrelpie

And if you don't reclaim the tax it will be repaid next tax year as for Audaxer's wife.

Sunnylifeover50plan

I made my initial UFPLS withdrawal in July, no other income for this tax year. The withdrawal was for £1k. Whilst no tax was payable HMRC issued a "week 1 month 1" tax code 1257L. AJ Bell suggested I contact HMRC for an accumulating code, which I did and which has now been received. I only mention this because my withdrawals will be higher until December, before reducing, and I didn't want any tax to be applied.

Shez95

I have just take money from my pension pot through UFPLS. Even though I only took the tax free amount of 25% I have been taxed on that 25% and the 75 % I haven't taken. Why is that? 

molerat

Shez95 said:

I have just take money from my pension pot through UFPLS. Even though I only took the tax free amount of 25% I have been taxed on that 25% and the 75 % I haven't taken. Why is that? 

Makes no sense.  If you only took the 25% tax free you did not take it as a UFPLS so I suspect you did take a UFPLS and 75% of it has been taxed as per the rules.  You need to be certain you have told the pension co precisely what you want to do.  A quote from HL

An UFPLS withdrawal shouldn’t be confused for a tax-free cash pension lump sum, where the entire payment is tax free.

xylophone

 through UFPLS.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise/pension-pot-options

You thought that you were using flexible retirement option but used number of lump sums option (UFPLS) by mistake?

You did not  choose to book a Pension Wise interview before accessing your pension?

dunstonh

I made my initial UFPLS withdrawal in July, no other income for this tax year. The withdrawal was for £1k. Whilst no tax was payable HMRC issued a "week 1 month 1" tax code 1257L. AJ Bell suggested I contact HMRC for an accumulating code, which I did and which has now been received. I only mention this because my withdrawals will be higher until December, before reducing, and I didn't want any tax to be applied.

That doesnt appear in line with expecation.

The first withdrawal would typically use LM1 until HMRC issue a tax code.  Not after.    HMRC would then tell the payroll team what tax code to use from then on.   You shouldn't need to get involved unless there is an error.

MoneySavingGerbil

dunstonh said:

I made my initial UFPLS withdrawal in July, no other income for this tax year. The withdrawal was for £1k. Whilst no tax was payable HMRC issued a "week 1 month 1" tax code 1257L. AJ Bell suggested I contact HMRC for an accumulating code, which I did and which has now been received. I only mention this because my withdrawals will be higher until December, before reducing, and I didn't want any tax to be applied.

That doesnt appear in line with expecation.

The first withdrawal would typically use LM1 until HMRC issue a tax code.  Not after.    HMRC would then tell the payroll team what tax code to use from then on.   You shouldn't need to get involved unless there is an error.

Resurrecting this thread just to say the same thing has happened with my tax code, so maybe some recent HMRC change in behaviour?

I made my first UFPLS withdrawl in December of £1333, so £1000 taxable. As expected Fidelity allocated a 1257L M1 tax code. However  that triggered HMRC to change my tax code to 1117NX, so still a month 1 tax code (the N is because I transferred my marriage allowance to my wife). A month later and HMRC show no sign of changing it to a cumulative code, so I'm going to be forced to ring them at some point as my plan was to draw a further UFPLS in March.

It seems odd as I would have thought this behaviour would result in HMRCs overstretched phone lines getting more calls. The HMRC explanation of the X coding is amusing

Your tax is based on your pay in each pay period, not the whole year. This stops you paying too much tax in one go.

If I leave it as it is then I'll definitely be paying too much tax in March :-)