What were your experiences of tax refunds when taking first drawdown

dont_use_vistaprint

My understanding is when you make your very first draw down of potentially taxable / crystallised money (not tax free funds)  , the pension provider will deduct 20% tax and you need to claim it back , if it results in you overpaying tax.

I don’t know if anyone else is experiencing the huge delays over the last 12 months with HMRC processing anything I’ve been waiting six months to claim the personal allowance others I know I’ve been waiting 3 to 4 months for much simpler refunds.

could someone please explain the process of claiming this money back and any experiences in the last 12 months? Was it straightforward and fast? Is it possible to claim it back immediately or must you wait until the following April and do it on a tax return?

Thank-you   

Voyager2002

I ran into the same thing... it is a hassle (unless you are willing to wait and claim it back through your next tax return) and you need to follow up with telephone calls, but you do get the money in the end. And no, it is not fast.

MK62

While it's true that the time to refund has been getting longer.......c.7 weeks in 2024......the process is still relatively simple. For a single UFPLS payment, you simply fill in a form P55 online, and wait for any refund to arrive in your bank account.

That said,  it's likely that if your first drawdown is relatively large (eg an annual withdrawal rather than a monthly one), the tax taken may be significantly more than 20%, as it will be calculated on a month 1 basis........but the process of reclaiming the overpaid tax is the same regardless. It's disappointing that HMRC haven't, as yet, introduced a better system for the tax treatment of this type of pension drawdown, but there it is.........

Marcon

Take a very small amount of (taxable) cash as your first drawdown and then wait until HMRC have issued a tax code to your provider, which means your next drawdown won't be taxed at emergency rate.

Issuing tax codes may not be exactly rapid, but it is usually a lot quicker than paying tax refunds!

Dazed_and_C0nfused

dont_use_vistaprint said:

My understanding is when you make your very first draw down of potentially taxable / crystallised money (not tax free funds)  , the pension provider will deduct 20% tax and you need to claim it back , if it results in you overpaying tax.

I don’t know if anyone else is experiencing the huge delays over the last 12 months with HMRC processing anything I’ve been waiting six months to claim the personal allowance others I know I’ve been waiting 3 to 4 months for much simpler refunds.

could someone please explain the process of claiming this money back and any experiences in the last 12 months? Was it straightforward and fast? Is it possible to claim it back immediately or must you wait until the following April and do it on a tax return?

Thank-you   

I don't know where you have read that but 20% tax is only deducted in some specific situations, for example a "small pot" withdrawal.

Normally the emergency tax code (1257L) will be operated on the first taxable payment.  So the amount of tax will depend on how much that is. 

It could consist of any of the following combinations being applied.

No tax
No tax + some 20% tax
No tax + some 20% tax + some 40% tax
No tax + some 20% tax + some 40% tax + some 45% tax

To some degree this is in your hands as you decide what the first taxable payment will be.

ali_bear

I think we should allow for the HMRC to be as knackered as all other public services at this time

dunstonh

My understanding is when you make your very first draw down of potentially taxable / crystallised money (not tax free funds)  , the pension provider will deduct 20% tax and you need to claim it back , if it results in you overpaying tax.

They use a month 1 tax code.   Often referred to as an emergency tax code.  Depedning on the amount taken and when it is in the tax year, the amount of tax may be higher or lower than it should be.

I don’t know if anyone else is experiencing the huge delays over the last 12 months with HMRC processing anything I’ve been waiting six months to claim the personal allowance others I know I’ve been waiting 3 to 4 months for much simpler refunds.

Typically, the electronic method via Government Gateway is 1 month and the paper method is 3 months.    In some periods, that extended to 3 months and 6 months respectively.

molerat

Far simpler to be aware of how the system works and take a first dip of under £1048 taxable and any further withdrawals calculating the x/12ths coded allowance.  Never had to reclaim tax from my own or MrsM's SIPP.

Pat38493

molerat said:

Far simpler to be aware of how the system works and take a first dip of under £1048 taxable and any further withdrawals calculating the x/12ths coded allowance.  Never had to reclaim tax from my own or MrsM's SIPP.

I guess it might be more complicated if you have multiple income streams e.g. DB pension, still working part time or suchlike?  Then you might have to contact HMRC to inform them which income streams are permanent to get the best tax code combination?

Dazed_and_C0nfused

Pat38493 said:

molerat said:

Far simpler to be aware of how the system works and take a first dip of under £1048 taxable and any further withdrawals calculating the x/12ths coded allowance.  Never had to reclaim tax from my own or MrsM's SIPP.

I guess it might be more complicated if you have multiple income streams e.g. DB pension, still working part time or suchlike?  Then you might have to contact HMRC to inform them which income streams are permanent to get the best tax code combination?

However HMRC never issue a tax code to a pension company first, the pension company has to report the first payment, usually using the emergency code (1257L) and then HMRC will review the code at that point.

eastcorkram

Dazed_and_C0nfused said:

Pat38493 said:

molerat said:

Far simpler to be aware of how the system works and take a first dip of under £1048 taxable and any further withdrawals calculating the x/12ths coded allowance.  Never had to reclaim tax from my own or MrsM's SIPP.

I guess it might be more complicated if you have multiple income streams e.g. DB pension, still working part time or suchlike?  Then you might have to contact HMRC to inform them which income streams are permanent to get the best tax code combination?

However HMRC never issue a tax code to a pension company first, the pension company has to report the first payment, usually using the emergency code (1257L) and then HMRC will review the code at that point.

I've had a code issued for a pension which hasn't started yet. First payment is due on 6th January. They've used DOX. Which I presume means it's all taxed at 40%. Which will probably be wrong, as I don't think I'd reach 40% this year, as I finished work on 20th December. Though I suppose HMRC are not aware of that yet.