Withdraw lump sum from Pension BR tax code.

dunstonh

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. 

Nowadays, the pension company would tax you under month 1 tax code  which is often referred to as emergency tax but back then, BR was also a common method.   So, when they told you they taxed you correctly, they were right.  They did tax you correctly for the transaction.

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. 

The pension company would never have told you that you have paid the right amount of tax.   They would have told you that they paid the right amount of tax.  They don't know your tax position and would never tell you if what you are paying is correct or not.

What you are required to pay and what they are required to pay are two different things.

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

Unfortunately, HMRC won't accept that and will take appropriate action to get you to pay it.  If you are lucky, they will set up a payment plan.  However, the repayment timescale would likely be painful in terms of monthly costs.  The worst case scenario is you have to sell up to raise the funds or, failing to do so, face bankruptcy.     So, you really should focus on how you will repay it.

Unfortunately, there is no error here for you to blame anyone else.   

Linton

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 

The pension company have no choice in the matter, they must use the tax codes as specified by HMRC.  For the first ever payment HMRC  dont know you exist as an "employee" of the pension company so they cant inform the pension company of a tax code appropriate to your circumstances.  In normal employee circumstances this would have  been resolved in the next payment(s) in the tax year but in your case there weren't any.  So HMRC could not correct your tax position until the end of the tax year.

These complications exist because drawdown is taxed under PAYE the same as wages.  However PAYE does not work very well with large one-off  payments.  But the effort to develop and implement new tax software and processes, given that PAYE already existed, and thousands of people were trained in its use, could not be justified.

Hoenir

molerat said:

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.

The ultimate tax liability would actually be dependent upon their earnings for the entire tax year. 

DRS1

I do not claim to understand tax codes or PAYE but there must be plenty of employees who pay tax under PAYE at rates higher than basic rate.  If the PAYE system can deduct higher rate tax for them why could it not do so for this payment which clearly on its own took the OP into the higher or additional rates of tax.  I am guessing the tax deduction actually applied means a BR code was applied - would a similar deduction have been made with a 1257X code?  Given it was a first payment and there was no code from HMRC could the pension company have chosen to use 1257X instead of BR?

eastcorkram

I've never quite understood the advice on here about taking a small amount first, in order to get a tax code generated.

Suppose the OP had just drawn down say £200 one month, then waited a few weeks to get a code, and then done the big drawdown. 

Wouldn't they still be in the same situation?

DRS1

eastcorkram said:

I've never quite understood the advice on here about taking a small amount first, in order to get a tax code generated.

Suppose the OP had just drawn down say £200 one month, then waited a few weeks to get a code, and then done the big drawdown. 

Wouldn't they still be in the same situation?

I suspect they would have had more tax deducted at source.  But as I said I know nothing about tax codes and PAYE so I am hoping someone who does will be along to set me straight.

Cobbler_tone

Strange innit?!
Everyone who I know and has been made redundant (there has been a LOT in my time) had the opposite experience. i.e. they paid 'super tax' and got rebates back (very nice ones in some instances) the following tax year if they didn't work again.
I think this is better than what we are reading here!

Hoenir

Reminds me of the old saying when it comes to dealing with matters relating to the HMRC. "Ignorance is no excuse". 

LHW99

Cobbler_tone said:

Strange innit?!
Everyone who I know and has been made redundant (there has been a LOT in my time) had the opposite experience. i.e. they paid 'super tax' and got rebates back (very nice ones in some instances) the following tax year if they didn't work again.
I think this is better than what we are reading here!

That's because their PAYE code assumed that over the year they would have a certain income, on which a given tax amount is due, and a tax code was given to deduct it in 12 installments. When they left, they had less than a year's income, so less tax was due for the year, and a refund was sent.

This, unfortunately for the OP, is a different case.

xylophone

Given the amount of the withdrawal, it is astonishing that the pension company did not proceed as here

https://adviser.royallondon.com/technical-central/pensions/case-studies/emergency-rate-income-tax/

In view of his other income, the deduction would still not have been correct but the OP would be in a rather better position.

Has the OP bought the house outright?

Perhaps he could consider mortgaging the property to raise the tax due?