Withdraw lump sum from Pension BR tax code.

Dazed_and_C0nfused

Hendog said:

MallyGirl said:

Whichever code should have been used, your tax liability remains unchanged so you were always going to be hit by this much tax for a withdrawal of this amount

HMCA got back to me today and said it was caused by a technical issue. They would not give me any more details than that. 

They have said I need to raise it with my pension provider as it’s their responsibility to ensure that all I tax was paid before releasing the money. 

So I am in the Process of writing a letter to my pension provider, to ask them to investigate it

With all due respect that doesn't make any sense.

You have previously confirmed that this was the first taxable payment you took from this pension so HMRC aren't involved in the tax code aspect.

The pension payer determines the code to use, ideally using the guidance HMRC supplies to employers and pension payers.

Hendog

Dazed_and_C0nfused said:

Hendog said:

MallyGirl said:

Whichever code should have been used, your tax liability remains unchanged so you were always going to be hit by this much tax for a withdrawal of this amount

HMCA got back to me today and said it was caused by a technical issue. They would not give me any more details than that. 

They have said I need to raise it with my pension provider as it’s their responsibility to ensure that all I tax was paid before releasing the money. 

So I am in the Process of writing a letter to my pension provider, to ask them to investigate it

With all due respect that doesn't make any sense.

You have previously confirmed that this was the first taxable payment you took from this pension so HMRC aren't involved in the tax code aspect.

The pension payer determines the code to use, ideally using the guidance HMRC supplies to employers and pension payers.

The Guidance is I believe, and from what I’ve been told, they should’ve done it as emergency tax so I overpaid and would have to claim the overpayment back.
They obviously never did that they did it on a BR tax code which meant they only did it at 20% on all the withdrawal.
I guess that is why HMRC have told me to speak to them about it and ask them to investigate it. 

Hoenir

Hendog said:

The biggest rip off was that by law you have to get a A financial advisor with a certain qualification for you to agree to cash your pension in, and that cost £10,000. 

I never met or talked to the advisor, who did it? It was all done through his secretaries.
I would love to be able to claim that money back as know matter what they said I was going to do it anyway but you have to go through one. Whether he said yes, or no, I could’ve still gone ahead of it. 

For that £10,000 you could run the idea past him and saved yourself an enormous amount of tax. By drawing down the monies differently.  I know what I'do in such a situation. 

Much of that fee goes towards paying the professional indemnity insurance. 

dunstonh

I guess that is why HMRC have told me to speak to them about it and ask them to investigate it. 

But what do you hope to get from it?

They may well say they could have done it that way but employed the other way, but under the rules of self-assessment, you are responsible for your own tax declarations to HMRC and there is no way for them to know what tax you owe.  They are not advisers. It isn't their role to advise you.  Just the usual generic risk warnings for you to read at your convenience.   

Did you read those risk warnings and what do they say about tax?
Maybe you can name the pension provider as there is a good probability that someone here has access to their risk warnings.

Hendog

dunstonh said:

I guess that is why HMRC have told me to speak to them about it and ask them to investigate it. 

But what do you hope to get from it?

They may well say they could have done it that way but employed the other way, but under the rules of self-assessment, you are responsible for your own tax declarations to HMRC and there is no way for them to know what tax you owe.  They are not advisers. It isn't their role to advise you.  Just the usual generic risk warnings for you to read at your convenience.   

Did you read those risk warnings and what do they say about tax?
Maybe you can name the pension provider as there is a good probability that someone here has access to their risk warnings.

No I’ve not read any risk warnings and don’t really know what you mean by risk warnings.  Would be helpful if you could tell me what it means so I can look into it.

yes I agree it’s my responsibility to pay any tax owed under self assessment but if someone or the pension company have made a mistake and  that is going to cost me extra money say any interest surely I would have a case to claim that off them. 

I have copied what it has said on the letter to me below this message what I have found since looking in to it. So surly they are at fault for not following this process unless they have a valid reason not to. I don’t want to name the company as it not fair on them and could comeback on me. To me it says they should have paid the tax and clearly have not and have broken the rules. 

You have also requested an income payment of £278,000.00 before tax. We will tax this as earned income, and pay you the amount after tax has been deducted.

If this is your first income payment since opening your Account, HMRC rules mean that we have to tax it on a Month 1 basis. This may mean you pay more tax on your first payment than you will on later payments. We will send details of your income payments to our tax office, 

Hendog

Hoenir said:

Hendog said:

The biggest rip off was that by law you have to get a A financial advisor with a certain qualification for you to agree to cash your pension in, and that cost £10,000. 

I never met or talked to the advisor, who did it? It was all done through his secretaries.
I would love to be able to claim that money back as know matter what they said I was going to do it anyway but you have to go through one. Whether he said yes, or no, I could’ve still gone ahead of it. 

For that £10,000 you could run the idea past him and saved yourself an enormous amount of tax. By drawing down the monies differently.  I know what I'do in such a situation. 

Much of that fee goes towards paying the professional indemnity insurance. 

You can’t just run it passed him. By law you have to go through the process to be able to withdraw your money. A pension company will not let you take the money out if you do not follow this process. The payment is taken out off your pension pot to pay the Advisor

Shadyocuk

But regardless of what happened it will not effect the amount of tax that YOU will HAVE to pay , YOUR tax affairs are YOUR responsibility. 

Asuming the figures you have given are correct then you tax bill would be approx

total taxable income £278K +£12.5K = £290.5K

£ 50270@20%  £10054
£ 74870@40%  £29948
£165360@45% £74412
 
Total tax           £114414  (not sure how you ever expected it to be "only" £89K
less paid          £   (3000)
less paid          £ (55000)

Total shortfall   £ 56414

Whilst it is too late for the OP it is a reminder that if you are making life changing financial decisions and you dont know all the rules/options , seek advice or at least opinions on an internet forum BEFORE acting.

If a House was purchased at £350K less deposit of £90K a repayment mortgage over 6 years  @4% (reasonable in 2023 for 75% LTV)  would have cost approx £33K interest

If the £278K pension had been withdrawn over 6 tax years then the total tax bill would have been approx £43K

Total cost of Tax and Interest £76K  verses £114K  giving a saving of £38K , 

The entire £278K could have been moved into cash within the pension so zero risk of the value going down and could
also have earned approx £20K of interest which after tax would have given another £16K

Total loss by taking all the pension in one year approx £54K plus a fight with HMRC and no doubt interest and/or penalties

Other options including fixed term annuity etc

Hendog

Shadyocuk said:

But regardless of what happened it will not effect the amount of tax that YOU will HAVE to pay , YOUR tax affairs are YOUR responsibility. 

Asuming the figures you have given are correct then you tax bill would be approx

total taxable income £278K +£12.5K = £290.5K

£ 50270@20%  £10054
£ 74870@40%  £29948
£165360@45% £74412
 
Total tax           £114414  (not sure how you ever expected it to be "only" £89K
less paid          £   (3000)
less paid          £ (55000)

Total shortfall   £ 56414

Whilst it is too late for the OP it is a reminder that if you are making life changing financial decisions and you dont know all the rules/options , seek advice or at least opinions on an internet forum BEFORE acting.

If a House was purchased at £350K less deposit of £90K a repayment mortgage over 6 years  @4% (reasonable in 2023 for 75% LTV)  would have cost approx £33K interest

If the £278K pension had been withdrawn over 6 tax years then the total tax bill would have been approx £43K

Total cost of Tax and Interest £76K  verses £114K  giving a saving of £38K , 

The entire £278K could have been moved into cash within the pension so zero risk of the value going down and could
also have earned approx £20K of interest which after tax would have given another £16K

Total loss by taking all the pension in one year approx £54K plus a fight with HMRC and no doubt interest and/or penalties

Other options including fixed term annuity etc

If I had done it over 6 years you would have to add the cost of my rent to that as will what would have been 6 x 14,000 = 84,000 what would have made a £20,000 loss

af1963

If I had done it over 6 years you would have to add the cost of my rent to that as will what would have been 6 x 14,000 = 84,000 what would have made a £20,000 loss

Why would you still be paying rent after buying a house ?  ( that's what the 6 year mortgage payments are for )

Hoenir

Hendog said:

Hoenir said:

Hendog said:

The biggest rip off was that by law you have to get a A financial advisor with a certain qualification for you to agree to cash your pension in, and that cost £10,000. 

I never met or talked to the advisor, who did it? It was all done through his secretaries.
I would love to be able to claim that money back as know matter what they said I was going to do it anyway but you have to go through one. Whether he said yes, or no, I could’ve still gone ahead of it. 

For that £10,000 you could run the idea past him and saved yourself an enormous amount of tax. By drawing down the monies differently.  I know what I'do in such a situation. 

Much of that fee goes towards paying the professional indemnity insurance. 

You can’t just run it passed him. By law you have to go through the process to be able to withdraw your money. A pension company will not let you take the money out if you do not follow this process. The payment is taken out off your pension pot to pay the Advisor

I know that full well. Simply exploring the comment you made. As the process seems flawed. 

As other avenues are seemingly going round and round in circles. Unfortunately the outcome isn't going to change.