Understanding 25% TFLS

steviemax

I am apologising beforehand as those seasoned posters will sigh and say not another one! I'm not well versed on pensions at all and need some help. I have a pension with Aegon and as I am 56 I took out a lump sum - only around 6K out of a pot of around 60K. I paid tax on this and now I am thinking should I be able to claim this back? I am in full-time employment and pay 20% PAYE. I've seen P53 and P53z being mentioned. Any help would be appreciated.

molerat

You would normally either withdraw the whole amount tax free or 25% tax free and 75% taxed, a decision made prior to withdrawing.  How much tax did you pay and what tax code was used - the paperwork you will have received will state both figures.  Why do you think you should get some tax refunded ?  There is a possibility you actually owe some tax.

A likely scenario would be withdrawing £6K would be £1.5K tax free and £4.5K taxable which using a 1257LX code would deduct £752.06 tax.  As a basic rate taxpayer £900 would be due on that £4.5K meaning you would owe the taxman £147.94.  Also by withdrawing taxable cash you will have limited yourself to contributing a maximum of £10K into a money purchase pension each year.

Dazed_and_C0nfused

Would echo that, the emergency tax code (1257L) is likely to have been used and if have a job or other pension in payment you are more likely to owe extra tax rather than be due a refund.

Especially on a smallish amount, in pension terms, like £4.5k.

Albermarle

 I'm not well versed on pensions at all and need some help

A free interview with Pension Wise and a look at this government website may help.
Pensions and retirement | Help with pensions and retirement | MoneyHelper

With a DC pension pot 25% is tax free and the remaining 75% is taxable.
You can not take taxable income without first ( or at the same time) taking some of the tax free part. As explained in a previous post, this can be done in more than one way and it should have been clear what was happening when you made the withdrawal.  

Moonwolf

As an aside, would/could the OP have triggered the MPAA? 

Could that have consequences for someone still in employment?

Dazed_and_C0nfused

Moonwolf said:

As an aside, would/could the OP have triggered the MPAA? 

Could that have consequences for someone still in employment?

Based on what they have posted yes, they have triggered MPAA and yes it can have severe consequences for some people.  Nothing to be worried about for others though.

Mutton_Geoff

Dazed_and_C0nfused said:

Would echo that, the emergency tax code (1257L) is likely to have been used

1257L is the standard tax code for many. M1 is the "emergency" tax code, otherwise known as Month 1 where tax is deducted on the assumption you will be drawing the same amount every month.

Dazed_and_C0nfused

Mutton_Geoff said:

Dazed_and_C0nfused said:

Would echo that, the emergency tax code (1257L) is likely to have been used

1257L is the standard tax code for many. M1 is the "emergency" tax code, otherwise known as Month 1 where tax is deducted on the assumption you will be drawing the same amount every month.

M1 isn't a tax code, it relates to how a tax code is operated.

M1 means non-cumulative, each payment is taxed without reference to what was paid and the tax deducted, earlier in the tax year.

I agree 1257L is the tax code many people have.  That doesn't stop it being the emergency tax code.

squirrelpie

https://www.gov.uk/tax-codes/emergency-tax-codes says: "If your tax code ends in ‘W1’ or ‘M1’ or ‘X’ you’re on an emergency tax code. For example:

• 1257L WI
• 1257L MI
• 1257L X

So W1 isn't a tax code, and 1257L isn't the emergency tax code.

Dazed_and_C0nfused

squirrelpie said:

https://www.gov.uk/tax-codes/emergency-tax-codes says: "If your tax code ends in ‘W1’ or ‘M1’ or ‘X’ you’re on an emergency tax code. For example:

• 1257L WI
• 1257L MI
• 1257L X

So W1 isn't a tax code, and 1257L isn't the emergency tax code.

That guidance is poor (wrong) as 1257L is the emergency tax code.

The W1/M1/X element isn't part of the tax code, it identifies if the code is being operated on a cumulative or non cumulative (often referred to as week 1/month1) basis.

The common perception is that 1257L on a non cumulative basis is the emergency code but they are really two different things.  1257L is the tax code and non cumulative is the basis of operation.

squirrelpie

Dazed_and_C0nfused said:

That guidance is poor (wrong) as 1257L is the emergency tax code.

The W1/M1/X element isn't part of the tax code, it identifies if the code is being operated on a cumulative or non cumulative (often referred to as week 1/month1) basis.

Well other pages in the same guide use the same terminology, so unless you can point to a better reference, I'll have to stick to my view.