Tax from SIPP withdrawal - help profiling please

Sunnylifeover50plan

Evening

I'm scratching my head trying to figure out how a potential sequence of withdrawals from my SIPP will be taxed. If someone here with experience can help I'd be grateful.

So far this tax year my only income has been from my SIPP - total withdrawn using UFPLS has been £11500 up-to and including Decembers withdrawal.

The below table shows the taxable element as of December. My tax code is the normal allowance set to cumulative.

Annual allowance	£12459
1/12th	£1038.25
Month of payment	8
Accrued Allowance	£8306
Total Taxable Payments Taken	£8625
Over Accrued Allowance	£319
20% of Excess (income tax)	£63.8

My SIPP withdrawals started in July 2024.

I intend on taking 25% of my available SIPP sometime in January 2025 to purchase a house, to live in, the tax free amount is circa £152000, I would still be short for what I need by around £28-30K net and so I am considering taking out another lump sump, which would be taxable, in January 2025 for this amount. From February I would continue to withdraw a monthly pension from the SIPP of circa £1600, that withdrawal would go up to the end of the 2024/5 tax year. For tax year 2025/6 I'm okay with planning.

I am unsure how to accurately predict what HMRC would do with this sequence of withdrawals and was hoping someone with experience could help illustrate what they would do in terms of taxing me?

None of the calculators I have access seem to allow for the above profiling.

Hopefully the above makes sense.

TIA

 

Dazed_and_C0nfused

Sunnylifeover50plan said:

Evening

I'm scratching my head trying to figure out how a potential sequence of withdrawals from my SIPP will be taxed. If someone here with experience can help I'd be grateful.

So far this tax year my only income has been from my SIPP - total withdrawn using UFPLS has been £11500 up-to and including Decembers withdrawal.

The below table shows the taxable element as of December. My tax code is the normal allowance set to cumulative.

Annual allowance	£12459
1/12th	£1038.25
Month of payment	8
Accrued Allowance	£8306
Total Taxable Payments Taken	£8625
Over Accrued Allowance	£319
20% of Excess (income tax)	£63.8

My SIPP withdrawals started in July 2024.

I intend on taking 25% of my available SIPP sometime in January 2025 to purchase a house, to live in, the tax free amount is circa £152000, I would still be short for what I need by around £28-30K and so I am considering taking out another lump sump, which would be taxable, in January 2025 for this amount. From February I would continue to withdraw a monthly pension from the SIPP of circa £1600, that withdrawal would go up to the end of the 2024/5 tax year. For tax year 2025/6 I'm okay with planning.

I am unsure how to accurately predict what HMRC would do with this sequence of withdrawals and was hoping someone with experience could help illustrate what they would do in terms of taxing me?

None of the calculators I have access seem to allow for the above profiling.

Hopefully the above makes sense.

TIA

 

HMRC won't be doing anything with it in the short term.

Your pension payer is responsible for deducting the appropriate (provisional) amount of tax from each payment.

A lot will depend on what your tax code is and then if that is being operated on a cumulative or non cumulative basis.

It's difficult to say much more as you haven't actually said what your tax code is or how much taxable income you will take from this pension or the date this payment will be made.

Sunnylifeover50plan

Dazed_and_C0nfused said:

Sunnylifeover50plan said:

Evening

I'm scratching my head trying to figure out how a potential sequence of withdrawals from my SIPP will be taxed. If someone here with experience can help I'd be grateful.

So far this tax year my only income has been from my SIPP - total withdrawn using UFPLS has been £11500 up-to and including Decembers withdrawal.

The below table shows the taxable element as of December. My tax code is the normal allowance set to cumulative.

Annual allowance	£12459
1/12th	£1038.25
Month of payment	8
Accrued Allowance	£8306
Total Taxable Payments Taken	£8625
Over Accrued Allowance	£319
20% of Excess (income tax)	£63.8

My SIPP withdrawals started in July 2024.

I intend on taking 25% of my available SIPP sometime in January 2025 to purchase a house, to live in, the tax free amount is circa £152000, I would still be short for what I need by around £28-30K and so I am considering taking out another lump sump, which would be taxable, in January 2025 for this amount. From February I would continue to withdraw a monthly pension from the SIPP of circa £1600, that withdrawal would go up to the end of the 2024/5 tax year. For tax year 2025/6 I'm okay with planning.

I am unsure how to accurately predict what HMRC would do with this sequence of withdrawals and was hoping someone with experience could help illustrate what they would do in terms of taxing me?

None of the calculators I have access seem to allow for the above profiling.

Hopefully the above makes sense.

TIA

 

HMRC won't be doing anything with it in the short term.

Your pension payer is responsible for deducting the appropriate (provisional) amount of tax from each payment.

A lot will depend on what your tax code is and then if that is being operated on a cumulative or non cumulative basis.

It's difficult to say much more as you haven't actually said what your tax code is or how much taxable income you will take from this pension or the date this payment will be made.

My allowance is shown as £12459 and I mentioned in the text that it is cumulative. I think I would have to take a taxable lump sum of £36k in order to receive around £29k net. The £36k would be on top of the £8625 I have taken to date plus £1600 x 3 for Jan Feb and March 2025. So total taxable would be £ 49425 up-to end of March 2025, less my tax allowance.

*edit* the tax calculator I use says I'd pay £7369 as tax over the tax year, but my concern is if HMRC treat it queerly expecting me to perhaps be taking this income each month going forward, or something else that's non standard.

I'm with A J Bell.

molerat

If you have drawn £8625 to date at Dec (M8) you will have paid no tax.  Taking £37600 in Jan will have £8013.46 tax deducted receiving £29586.54 net so £27986.54 above your normal £1600. In Feb you would receive a tax refund of £407.53 so receiving £2007.53 and March a refund of £236.93 receiving £1836.93 so overall deducting £7369.

If the drawings are flexible and you need the £1600 each month you need to draw a total of £39300 in Jan, £930 in Feb and £1050 in Mar to receive £30606.54, £1605.53 and £1602.03 (Assuming England/Wales)

Sunnylifeover50plan

molerat said:

If you have drawn £8625 to date at Dec (M8) you will have paid no tax.  Taking £37600 in Jan will have £8013.46 tax deducted receiving £29586.54 net so £27986.54 above your normal £1600. In Feb you would receive a tax refund of £407.53 so receiving £2007.53 and March a refund of £236.93 receiving £1836.93 so overall deducting £7369.

If the drawings are flexible and you need the £1600 each month you need to draw a total of £39300 in Jan, £930 in Feb and £1050 in Mar to receive £30606.54, £1605.53 and £1602.03

thankyou - this has helped. I will make efforts to sanity check it with AJ Bell tomorrow but it will help me sleep better tonight

molerat

I suspect trying to sanity check the tax situation with AJB will prove fruitless.

Dazed_and_C0nfused

molerat said:

If you have drawn £8625 to date at Dec (M8) you will have paid no tax.  Taking £37600 in Jan will have £8013.46 tax deducted receiving £29586.54 net so £27986.54 above your normal £1600. In Feb you would receive a tax refund of £407.53 so receiving £2007.53 and March a refund of £236.93 receiving £1836.93 so overall deducting £7369.

If the drawings are flexible and you need the £1600 each month you need to draw a total of £39300 in Jan, £930 in Feb and £1050 in Mar to receive £30606.54, £1605.53 and £1602.03 (Assuming England/Wales)

Not following that to be honest.

I know the op hasn't said what tax code is being used but if we assume it is 1245L then that would tally with the tax which has seemingly been deducted at month 8.

Which would mean there is no extra tax code allowances available, over and above the normal £1,038.25, to use against the month 9 (or 10) payment and also a little bit less basic rate band will be available.

Both of which will affect the tax deducted from a payment as large as £37,600.

molerat

Oops.  Got my months mixed up as OP stated Dec and I just used that, and used wrong code as they stated "normal allowance".

So OP, are you drawing anything in December (M9) ?  If not then the revised figures would be Jan £39250 to get £30600.14, Feb £930 to get £1601.53, Mar £1035 to get £1600.93

Sunnylifeover50plan

molerat said:

Oops.  Got my months mixed up as OP stated Dec and I just used that, and used wrong code as they stated "normal allowance".

So OP, are you drawing anything in December (M9) ?  If not then the revised figures would be Jan £39250 to get £30600.14, Feb £930 to get £1601.53, Mar £1035 to get £1600.93

Apologies and thanks for both of regular contributor responses - my tax code is 1245L cumulative

I took out; £1000 in July, £1575 in August, September, October, November and December. I was taxed £63.80 in December, whicj AJ Bell stated was my month 8 payment. Payroll date is 02nd of each month. Each month saw a UFPLS tax free element too of £525 except for the initial withdrawal in July.