Withdraw lump sum from Pension BR tax code.

Hendog

af1963 said:

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 )

sorry didn’t read in properly ( I am Dyslexic and didn’t take it all in properly)
Great way of looking at it. 

The only problem I would have had would have been getting a mortgage for various reasons. 

FIREDreamer

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

Why is £50,270 taxed at 20%? It should be the 20% band of £35,300 taxed at this rate I think.

The loss of the personal allowance shifts a further £12,570 (the personal allowance) into 45% I think in this case, not 20%? This increases the tax due by another £3,142 or thereabouts.

BikingBud

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If the £278K pension had been withdrawn over 6 tax years then the total tax bill would have been approx £43K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

That's where I was aiming!

Without considering options such as this OP was doomed to be committed to paying significant tax.  

Hendog said:

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

Unfortunately I think this sums up the issue, it is viewed as cash in hand and not as part of a planned complete and efficient cash flow over a number of years, something to enable an activity now but spread the cost.

I also feel the massive bad press for renting and the proclaimed wonder of owning a property perhaps mortgage free, might have clouded the judgment somewhat.

Mortgage free but at what cost?

Hendog

FIREDreamer said:

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

Why is £50,270 taxed at 20%? It should be the 20% band of £35,300 taxed at this rate I think.

The loss of the personal allowance shifts a further £12,570 (the personal allowance) into 45% I think in this case, not 20%? This increases the tax due by another £3,142 or thereabouts.

They took around £3000 in the year I took the pension out from November to April so That has been taken off the total tax Owed. 

They have took £5000 so far this year out off my wages as they been taxing me at 40% even though I don’t earn enough to be taxed. 

I presume at some point it will be taken off the tax bill or refund to me. 

They have stop the 40% tax now as apparently they should not have done it. 

Cobbler_tone

This could be my situation, albeit I live with my partner who is mortgage free.
Cash/pension rich but asset poor. If I was on my own I would have access to £200k+ cash and £20k odd a year income (or clearly less cash and more pension) but wouldn't own a property in my late 50's. I'd easily get a mortgage whilst working on my salary but want to give up soon'ish.
It would be a balance of looking to buy something vs renting for the rest of my days. I am not sure which I would do. I know a couple of people in the exact same situation.

Better stick with her so it doesn't become a decision! 

Hendog

Cobbler_tone said:

This could be my situation, albeit I live with my partner who is mortgage free.
Cash/pension rich but asset poor. If I was on my own I would have access to £200k+ cash and £20k odd a year income (or clearly less cash and more pension) but wouldn't own a property in my late 50's. I'd easily get a mortgage whilst working on my salary but want to give up soon'ish.
It would be a balance of looking to buy something vs renting for the rest of my days. I am not sure which I would do. I know a couple of people in the exact same situation.

Better stick with her so it doesn't become a decision! 

The rented house I was in was 2 bedroom and we had a boy and a girl so we had to make the front room a bedroom and a very small dining room into a lounge you could just fit a two seater settee in it. We got none stop damp and many other problems. 

The landlord did not care as long as he got his money. 

Rented houses are so short where I live I was always worried what if the landlord wanted use to move out.
So when the opportunity came to buy my own property it was a no brainier. 

I just look at it that I have invested my money in to property and have no rent to pay. 

Everybody’s circumstances are different. 

DRS1

Hendog said:

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, 

The bit I have put in italics and bold is the sort of warning @dunstonh is talking about.  What they are doing is warning about the usual situation where more tax is deducted than should be deducted.  It is the usual issue on these boards and gives rise to guidance on how to claim back the extra tax.  If you ask them what happened I think you should quote this warning back at them because it would make you think they might deduct too much tax not too little.

The mention of a Month 1 basis doesn't really help with the tax code they are going to use - I don't think it excludes using a BR code but perhaps one of the tax experts on here can comment on that.

I doubt very much whether they will take responsibility for any of the tax due - what they did makes no difference to how much tax you have to pay - it only affects how it is collected.  As to interest well maybe they will accept that if they had not given you the possible overpayment of tax warning and the we have deducted the right amount of tax assurance then you would not have spent the money you should have held back for the ultimate tax bill.  In that case the fact that you will have to pay interest on that tax bill could be laid at their door.  It is arguable.  The result I would expect from any complaint you may make would be a payment for distress and inconvenience which may be £50 or £100 or so.

Hendog

DRS1 said:

Hendog said:

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, 

The bit I have put in italics and bold is the sort of warning @dunstonh is talking about.  What they are doing is warning about the usual situation where more tax is deducted than should be deducted.  It is the usual issue on these boards and gives rise to guidance on how to claim back the extra tax.  If you ask them what happened I think you should quote this warning back at them because it would make you think they might deduct too much tax not too little.

The mention of a Month 1 basis doesn't really help with the tax code they are going to use - I don't think it excludes using a BR code but perhaps one of the tax experts on here can comment on that.

I doubt very much whether they will take responsibility for any of the tax due - what they did makes no difference to how much tax you have to pay - it only affects how it is collected.  As to interest well maybe they will accept that if they had not given you the possible overpayment of tax warning and the we have deducted the right amount of tax assurance then you would not have spent the money you should have held back for the ultimate tax bill.  In that case the fact that you will have to pay interest on that tax bill could be laid at their door.  It is arguable.  The result I would expect from any complaint you may make would be a payment for distress and inconvenience which may be £50 or £100 or so.

luckily at the moment HMRC have said I will not get any Penalties or interest, put on it as long as I pay £100 a month until a outcome is made.
I have to wait now until the pension company get back to me as I have sent a letter asking them to investigate it as to way all the tax was not payed when it’s their responsibility to ensure that all the tax was paid before I received any money. 

I did a payment plan with HMRC what would mean that the payments I can afford would cause the interest to be over £100000. So if they have made a mistake it could be in their interest to help me to clear the tax payment. 

At the end of the day I can Challenge them and if it’s not resolved take it to the ombudsman if there is a case. 

TheSpectator

Hendog said:

DRS1 said:

Hendog said:

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, 

The bit I have put in italics and bold is the sort of warning @dunstonh is talking about.  What they are doing is warning about the usual situation where more tax is deducted than should be deducted.  It is the usual issue on these boards and gives rise to guidance on how to claim back the extra tax.  If you ask them what happened I think you should quote this warning back at them because it would make you think they might deduct too much tax not too little.

The mention of a Month 1 basis doesn't really help with the tax code they are going to use - I don't think it excludes using a BR code but perhaps one of the tax experts on here can comment on that.

I doubt very much whether they will take responsibility for any of the tax due - what they did makes no difference to how much tax you have to pay - it only affects how it is collected.  As to interest well maybe they will accept that if they had not given you the possible overpayment of tax warning and the we have deducted the right amount of tax assurance then you would not have spent the money you should have held back for the ultimate tax bill.  In that case the fact that you will have to pay interest on that tax bill could be laid at their door.  It is arguable.  The result I would expect from any complaint you may make would be a payment for distress and inconvenience which may be £50 or £100 or so.

luckily at the moment HMRC have said I will not get any Penalties or interest, put on it as long as I pay £100 a month until a outcome is made.
I have to wait now until the pension company get back to me as I have sent a letter asking them to investigate it as to way all the tax was not payed when it’s their responsibility to ensure that all the tax was paid before I received any money. 

I did a payment plan with HMRC what would mean that the payments I can afford would cause the interest to be over £100000. So if they have made a mistake it could be in their interest to help me to clear the tax payment. 

At the end of the day I can Challenge them and if it’s not resolved take it to the ombudsman if there is a case. 

Have you it in writing that no interest will be charged?. There are some unique circumstances where HMRC will give up interest that is legally due and this scenario is not one of them.

The advice HMRC gave for you to contact the pension company is also incorrect. The only people who can hold the pension company to account is HMRC and as I said earlier they won't in your situation.

Dazed_and_C0nfused

TheSpectator said:

Hendog said:

DRS1 said:

Hendog said:

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, 

The bit I have put in italics and bold is the sort of warning @dunstonh is talking about.  What they are doing is warning about the usual situation where more tax is deducted than should be deducted.  It is the usual issue on these boards and gives rise to guidance on how to claim back the extra tax.  If you ask them what happened I think you should quote this warning back at them because it would make you think they might deduct too much tax not too little.

The mention of a Month 1 basis doesn't really help with the tax code they are going to use - I don't think it excludes using a BR code but perhaps one of the tax experts on here can comment on that.

I doubt very much whether they will take responsibility for any of the tax due - what they did makes no difference to how much tax you have to pay - it only affects how it is collected.  As to interest well maybe they will accept that if they had not given you the possible overpayment of tax warning and the we have deducted the right amount of tax assurance then you would not have spent the money you should have held back for the ultimate tax bill.  In that case the fact that you will have to pay interest on that tax bill could be laid at their door.  It is arguable.  The result I would expect from any complaint you may make would be a payment for distress and inconvenience which may be £50 or £100 or so.

luckily at the moment HMRC have said I will not get any Penalties or interest, put on it as long as I pay £100 a month until a outcome is made.
I have to wait now until the pension company get back to me as I have sent a letter asking them to investigate it as to way all the tax was not payed when it’s their responsibility to ensure that all the tax was paid before I received any money. 

I did a payment plan with HMRC what would mean that the payments I can afford would cause the interest to be over £100000. So if they have made a mistake it could be in their interest to help me to clear the tax payment. 

At the end of the day I can Challenge them and if it’s not resolved take it to the ombudsman if there is a case. 

Have you it in writing that no interest will be charged?. There are some unique circumstances where HMRC will give up interest that is legally due and this scenario is not one of them.

The advice HMRC gave for you to contact the pension company is also incorrect. The only people who can hold the pension company to account is HMRC and as I said earlier they won't in your situation.

Agree with this.  Highly unlikely there will be no interest charged.

And I really don't understand what you are ultimately hoping to achieve from the pension company.