Month 1 tax code and drawdown

Badknee

Hi. 

I'd be grateful for some guidance on pension drawdown taxation. I've read various articles and many of the helpful posts on this forum but wanted to double check that I hadn't misunderstood.

I turned 55 in February 2024 and started income drawdown in October this year from my drawdown account at the rate of £1,000.00 a month. I didn't pay any tax on that first withdrawal last month and have received a 'Month 1' tax code from HMRC. I haven't had any other form of income other than my tax free lump sum. 

I want to withdraw a total of £12,570.00 by the end of the financial year, necessitating an increase in monthly drawdown to around £2,300.00 for each of the next 5 months. Am I correct in thinking that I would have to pay tax upfront on the withdrawals and then claim it back from HMRC next April?

Many thanks. 

Dazed_and_C0nfused

Ignoring smallish amounts of interest or dividends have you had any other taxable income in the current tax year?

molerat

Are you saying you have had no other income this year ? If so speak to HMRC to get the code sorted to cumulative.

dunstonh

I want to withdraw a total of £12,570.00 by the end of the financial year, necessitating an increase in monthly drawdown to around £2,300.00 for each of the next 5 months. Am I correct in thinking that I would have to pay tax upfront on the withdrawals and then claim it back from HMRC next April?

Month 12 of the payroll cycle should be a balancing month for PAYE.  So, unless you have other income which doesnt fall under PAYE, then you shouldn't need to do anything.  Tax code should be sorted by following month after the first payment.

I haven't had any other form of income other than my tax free lump sum. 

Tax free cash is not income, even if it is paid monthly.

Badknee

Thanks to you all for your replies. No I haven't had any other form of income this year and have relied on savings to date. My first drawdown payment was just a week or so ago, so hopefully I'll get the new tax code shortly and go from there. 

Thanks again to you all for you help. 

molerat

Have you access to your on line tax account ?  The new code is usually applied within a couple of days, the code used for the first drawdown was not applied by HMRC but by the pension provider in accordance with the rules for a first withdrawal.

Dazed_and_C0nfused

If for some reason the code is still the emergency code (1257L) on a non cumulative basis then you can just ask HMRC to issue the code on a cumulative basis.

Make sure they know you expect to take £12,570 in taxable pension income in the current tax year.

Badknee

Thanks to you both. That's really helpful again. I do have access to my tax account and will ask for cumulative basis code. 

Badknee

Thank you molerat, dunstonh and Dazed_and_C0nfused for the prompt replies and advice yesterday. HMRC changed my tax code immediately upon contacting them, so all sorted. Cheers. 

Dazed_and_C0nfused

Badknee said:

Thank you molerat, dunstonh and Dazed_and_C0nfused for the prompt replies and advice yesterday. HMRC changed my tax code immediately upon contacting them, so all sorted. Cheers. 

That means you should be able to get the money out sooner if you wanted.

It will depend a little on when your pension companies monthly payroll is run but for the current tax period (month 8) you now have tax code allowances of £8,386 so could take another £7,386 without paying tax.  

Each remaining month adds another £1048.25 to the amount you can take without paying tax.

It might make more sense to spread it more equally though.

The above is assuming the cumulative code is 1257L (or C1257L or S1257L) and the £1,000 you mentioned in your first post was taxable pension, not including any TFLS.

Badknee

Yes it's 1257L, and the initial £1,000.00 was taxable pension. Your advice has been fantastic, so thanks again.