Withdraw lump sum from Pension BR tax code.

Hendog

…………zzzssss

AlanP_2

Was that your first taxable withdrawal form that pension?

If it was, and the way PAYE systems work, is that the provider had not been given a tax code for you by HMRC at the point of withdrawal. They inform HMRC you have made a withdrawal and HMRC generate a tax code and send it to them for use in the future.

£55k looks like 20% tax and on that level of withdrawal the amount due would be much higher. 


Go back through your "pension payslips" / P60 and post the exact details on here along with what you filled in on your tax return and someone can at least double check the calculations for you. Don't forget any other taxable income that needs to be included as well.

molerat

When taking a taxable amount from a pension the pension provider is bound by the tax rules to deduct tax, depending on circumstances, at 1257X, BR or a code provided by HMRC.  They will have deducted "the correct amount of tax" according to the code in use but that might not be the correct amount of tax for your circumstances, that is a matter between you and HMRC. No one, apart from you, will know ahead of taking the money how your personal situation will be affected. Before taking that large an amount you should have sought advice from a tax professional or even posted here.  I believe neither HMRC or the pension provider will be in the wrong here and unfortunately it is all down to you for not seeking advice, the pension co are not qualified to give tax advice, prior to taking the money. Somewhere along the way you will have confirmed to them that you had either sought or did not need advice. You will need to come to an arrangement over payment as for that amount HMRC are likely to get aggressive in their recovery.

Dazed_and_C0nfused

Hendog said:

Hi, 
In 2023 I withdrew a lump sum from my Pension.
1st I took my 25% tax free approximately £97,000.
I then took £278,000 out of which I paid £55,000 in tax. 

All this money was to buy a house. 

I rang my Pension company to check that the 55,000 was the right amount of tax, so I knew I had enough money to buy a house. They said yes so I received approximately £223,000. 

I then brought a house. 

Out off the blue I received a tax return in November 2024 ( I have never done one before) 
So I filled it in with the correct figures. 

To my shock, I then received a letter from HMRC saying I owe 57,000 in tax. 

I rang HMRC to ask why the said because I did not pay enough tax on my pension lump sum withdrawal even though my pension company told me, I had paid the right amount of tax. 

I have now found out the reason why is because my Pension company put me on a BR tax code. At the moment I do not know whether HMRC did this or my pension company did this I have asked HMRC to investigate it. 

I do not have the 57,000 to pay it as I did not know I owed it. 

Can you tell me should it been taxed on a BR tax code as I was not aware of this until I got the tax bill. 

I think either HMRC have given my pension company the wrong tax code or my pension company have used the wrong tax. 

A pension company cannot possibly know the actual tax you would owe on such a withdrawal.

They should deduct tax following the guidance provided by HMRC and then the actual position is reviewed and finalised at a later date.  In this case from your tax return.

Cobbler_tone

Without knowing other income and tax paid that year, I’d say the amount you know sounds about right…at least in the ballpark. Some at 45%, some at 40%. It’s the downside of taking it in one go.
i.e after the tax free element, with a larger figure you need to bank on getting just over half of it net.

Probably best to ignore any incoming comments of what you should have done!
Hope you get things sorted.

Hendog

Yes it was my 1st Withdraw from my pension. 

My wages for the year was £12,500
I took £278000 out of my pension. 

That is what I put on my tax return and p60 and is correct. 

I had my £97,000 25% tax free 1st what are not part off the figures above.

My pension company paid my Tax £55,000 of which they told me was right at the time. 

I also got taxed £3,000 from my salary of £12,500 once I took my pension out something to do with my personal allowance. 

They are saying I should have payed £116,000 in tax so a shortfall off £58,000. 

The tax amount is most probably right. 

But surely my pension company should have used the right tax code or an emergency tax code to collect the right amount of tax to pay HMRC and not used a BR tax code. 

I have only Learnt anything I have put on here in the last week. I trust my pension company to pay the right tax as they told me. 

Hoenir

Whatever the ins and outs. You need now need to address the issue of the underpaid tax. 

MallyGirl

the pension company could only use the tax code they are told to as per @molerat's response above

Hendog

I am trying to sort the under payment out that’s why I have posted on here. 

What I am asking is should off a BR tax code been used by either my pension company or HMRC on withdrawing the lump sum as all I can find is that it should’ve been done as emergency tax 

Hoenir

Hendog said:

I am trying to sort the under payment out that’s why I have posted on here. 

What I am asking is should off a BR tax code been used by either my pension company or HMRC on withdrawing the lump sum as all I can find is that it should’ve been done as emergency tax 

In performing the transaction you presumably were aware of the tax implications. When the amount you received was higher than you were expecting. Didn't you think to query it.  

molerat

Hoenir said:

Hendog said:

I am trying to sort the under payment out that’s why I have posted on here. 

What I am asking is should off a BR tax code been used by either my pension company or HMRC on withdrawing the lump sum as all I can find is that it should’ve been done as emergency tax 

In performing the transaction you presumably were aware of the tax implications. When the amount you received was higher than you were expecting. Didn't you think to query it.  

I don't believe they did understand the overall tax implication and how PAYE works on particular lump sums as they queried with the provider if the correct amount of tax had been deducted and was told yes, which it was according to the PAYE code being correctly used by the provider in the particular circumstance.  

As in my previous post they were bound to use 1257X, BR or a HMRC supplied code depending on circumstances and it is most likely that BR was correct in this case.  Most people do not take that amount out in a lump sum and BR would have most likely been satisfactory in the vast majority of cases.