Reclaiming tax on small withdrawals from SIPP

Dornfield

I have not worked since the Pandemic, and as I'm about to turn 59, I think people are starting to notice my "extensive experience".  I'm pretty specialised too, so job opportunities are few and far between.  Hence, I am coming to the realisation that I might have already retired!  My wife is several years younger and well paid, but as an NHS consultant, I will be 72 by the time she retires aged 67, if she hangs on to receive her full NHS pension.  Too long to wait....
So anyway, I have opted to withdraw a small amount from my SIPP (Fisher Investments) which has performed well over the past two years after an initial and scary drop when I consolidated pensions under that banner about three years ago.  I'm still in a (fairly risky) 100% stocks strategy. 
I have asked to withdraw £33,520 from the SIPP, on the understanding that as I received no income at all (and therefore paid no tax) in tax year 23-24, and will also receive no income 24-25, my personal annual allowance of £12,570 was (and will be) unused in both tax years.  As any withdrawal from the SIPP can be 25% tax free (and I have thus far used zero of my lifetime allowance there), my £33,520 withdrawal breaks down as 2 x £12,570 (two tax years, going back to last year too) and 2 x £4,190 25% (two tax free 'little lump sums').
HMRC have lost interest in me as my tax affairs are boring, and I have not had to submit a tax return for a few years.  But, unaware of my other 'incomes', I imagine when I am paid this £33,520, it will be taxed at 20% 'at source', net £26,816, and then I'll have to explain to HMRC that they owe me £6,704 (20% of £33,520).  Is there anything wrong with this logic or expected chain of events?  Is a tax return unavoidable?
Hopefully, I can leave the residual funds in the SIPP to grow, if the markets hold off on a dramatic correction.

Dazed_and_C0nfused

Dornfield said:

I have not worked since the Pandemic, and as I'm about to turn 59, I think people are starting to notice my "extensive experience".  I'm pretty specialised too, so job opportunities are few and far between.  Hence, I am coming to the realisation that I might have already retired!  My wife is several years younger and well paid, but as an NHS consultant, I will be 72 by the time she retires aged 67, if she hangs on to receive her full NHS pension.  Too long to wait....
So anyway, I have opted to withdraw a small amount from my SIPP (Fisher Investments) which has performed well over the past two years after an initial and scary drop when I consolidated pensions under that banner about three years ago.  I'm still in a (fairly risky) 100% stocks strategy. 
I have asked to withdraw £33,520 from the SIPP, on the understanding that as I received no income at all (and therefore paid no tax) in tax year 23-24, and will also receive no income 24-25, my personal annual allowance of £12,570 was (and will be) unused in both tax years.  As any withdrawal from the SIPP can be 25% tax free (and I have thus far used zero of my lifetime allowance there), my £33,520 withdrawal breaks down as 2 x £12,570 (two tax years, going back to last year too) and 2 x £4,190 25% (two tax free 'little lump sums').
HMRC have lost interest in me as my tax affairs are boring, and I have not had to submit a tax return for a few years.  But, unaware of my other 'incomes', I imagine when I am paid this £33,520, it will be taxed at 20% 'at source', net £26,816, and then I'll have to explain to HMRC that they owe me £6,704 (20% of £33,520).  Is there anything wrong with this logic or expected chain of events?  Is a tax return unavoidable?
Hopefully, I can leave the residual funds in the SIPP to grow, if the markets hold off on a dramatic correction.

Words (almost) fail me.

Why do you think you can treat this pension income as being applicable to two different tax years?

Or why do you think you can carry forward unused Personal Allowance from one tax year to another?

Assuming this is a mix of TFLS and taxable income you will have just shy of £25k pension income in the current tax year.  Fact.

The pension company will almost certainly use the emergency tax code (1257L) on the first payment so expect a mix of 0, 20, 40 and 45% tax to be deducted.  HMRC will automatically refunded any overpaid tax in due course (summer 2025 if the pension payment is made to you before 6 April 2025).  Or you can try and claim it back sooner if you wish.

Was your wife a higher rate taxpayer in 2023-24 🤔

Why do you think a tax return might be at all relevant?

dunstonh

I have asked to withdraw £33,520 from the SIPP, on the understanding that as I received no income at all (and therefore paid no tax) in tax year 23-24, and will also receive no income 24-25, my personal annual allowance of £12,570 was (and will be) unused in both tax years. 

That is not how it works.    The £33,520 will be treated wholly in 24/25.

As any withdrawal from the SIPP can be 25% tax free (and I have thus far used zero of my lifetime allowance there), my £33,520 withdrawal breaks down as 2 x £12,570 (two tax years, going back to last year too) and 2 x £4,190 25% (two tax free 'little lump sums').

As above, you don't get two lots of personal allowance.  The minute we hit 6th April, any unused allowance from the previous tax year is lost.

I imagine when I am paid this £33,520, it will be taxed at 20% 'at source', net £26,816, and then I'll have to explain to HMRC that they owe me £6,704 (20% of £33,520).  Is there anything wrong with this logic or expected chain of events?  Is a tax return unavoidable?

It wont trigger a tax return but its likely you will be over taxed unless you do it in month 12 of payroll (after March 7th)

As you are using Fisher, is there any reason they didn't tell you to use your unused personal allowance in 23/24?
Normally, advisers map out your retirement plan and will carry out transactions in respect of tax efficiency.    That hasn't happened here.  Have you and they modelled out the plan?

Marcon

Dornfield said:

I have asked to withdraw £33,520 from the SIPP, on the understanding that as I received no income at all (and therefore paid no tax) in tax year 23-24, and will also receive no income 24-25, my personal annual allowance of £12,570 was (and will be) unused in both tax years.  As any withdrawal from the SIPP can be 25% tax free (and I have thus far used zero of my lifetime allowance there), my £33,520 withdrawal breaks down as 2 x £12,570 (two tax years, going back to last year too) and 2 x £4,190 25% (two tax free 'little lump sums').
HMRC have lost interest in me as my tax affairs are boring, and I have not had to submit a tax return for a few years.  But, unaware of my other 'incomes', I imagine when I am paid this £33,520, it will be taxed at 20% 'at source', net £26,816, and then I'll have to explain to HMRC that they owe me £6,704 (20% of £33,520).  Is there anything wrong with this logic or expected chain of events?  Is a tax return unavoidable?
Hopefully, I can leave the residual funds in the SIPP to grow, if the markets hold off on a dramatic correction.

You seem to be hopelessly confused. If you don't use your full personal allowance in any one tax year, you lose any unused part (in your case 100% for last year). You use the words 'on the understanding' but I'm afraid it's a misunderstanding - and if you are expecting your SIPP provider to correct you, they won't.

As Dazed has pointed out, you'll be hit for tax for 75% of your withdrawal of £33,250. It might therefore make more sense to either take a greater proportion of this withdrawal** as tax free cash (assuming your SIPP is big enough to do so) or look at taking some cash this tax year and some after 6 April.

**which will limit the amount of tax free cash available for future withdrawals

Dornfield

That is not how it works.    The £33,520 will be treated wholly in 24/25.

It wont trigger a tax return but its likely you will be over taxed unless you do it in month 12 of payroll (after March 7th)

As you are using Fisher, is there any reason they didn't tell you to use your unused personal allowance in 23/24?

That's informative: my searches online suggested that I could go back to claim the last tax year's unused personal allowance, but no further.  Hence the though that I could attribute the income to two separate tax years.  So it wasn't complete ignorance that made me think that was possible.  If not possible, then I am left wondering whether I should withdraw anything just yet.  Maybe better to just extract from ISAs.
I am due to be meeting Fisher in early Feb, but as I have just been in 'accumulation' since consolidating pension pots, I have not yet had a personal plan created.  The recent changes in IHT on pensions means I think I'm likely to run the pension down much more significantly than I had envisaged before, and that planning is certainly beyond my capability.

molerat

If you take £33520 then £25140 will be taxable and the provider will deduct £9691.20 tax

Tax due on that amount, with no other taxable income in the year and not a Scottish resident, will be £2512 so you will be due a £7179 tax refund.  There are cleverer ways of doing it to avoid having to reclaim the tax though.

Dazed_and_C0nfused

Dornfield said:

That is not how it works.    The £33,520 will be treated wholly in 24/25.

It wont trigger a tax return but its likely you will be over taxed unless you do it in month 12 of payroll (after March 7th)

As you are using Fisher, is there any reason they didn't tell you to use your unused personal allowance in 23/24?

That's informative: my searches online suggested that I could go back to claim the last tax year's unused personal allowance, but no further.  Hence the though that I could attribute the income to two separate tax years.  So it wasn't complete ignorance that made me think that was possible.  If not possible, then I am left wondering whether I should withdraw anything just yet.  Maybe better to just extract from ISAs.
I am due to be meeting Fisher in early Feb, but as I have just been in 'accumulation' since consolidating pension pots, I have not yet had a personal plan created.  The recent changes in IHT on pensions means I think I'm likely to run the pension down much more significantly than I had envisaged before, and that planning is certainly beyond my capability.

Could you provide a link to somewhere that suggested that?

Although you may not have had any income to use your Personal Allowance that doesn't mean it is a totally lost cause.  Was your wife a higher rate payer in 2023-24?

Do you think not using your Personal Allowance in 2024-25 is a good choice?

Marcon

Dazed_and_C0nfused said:

Dornfield said:

That is not how it works.    The £33,520 will be treated wholly in 24/25.

It wont trigger a tax return but its likely you will be over taxed unless you do it in month 12 of payroll (after March 7th)

As you are using Fisher, is there any reason they didn't tell you to use your unused personal allowance in 23/24?

That's informative: my searches online suggested that I could go back to claim the last tax year's unused personal allowance, but no further.  Hence the though that I could attribute the income to two separate tax years.  So it wasn't complete ignorance that made me think that was possible.  If not possible, then I am left wondering whether I should withdraw anything just yet.  Maybe better to just extract from ISAs.
I am due to be meeting Fisher in early Feb, but as I have just been in 'accumulation' since consolidating pension pots, I have not yet had a personal plan created.  The recent changes in IHT on pensions means I think I'm likely to run the pension down much more significantly than I had envisaged before, and that planning is certainly beyond my capability.

Could you provide a link to somewhere that suggested that?

Although you may not have had any income to use your Personal Allowance that doesn't mean it is a totally lost cause.  Was your wife a higher rate payer in 2023-24?

Do you think not using your Personal Allowance in 2024-25 is a good choice?

I suspect the words 'personal' and 'pension' might have been confused along the way...

Qyburn

Dornfield said:

.... 
I have asked to withdraw £33,520 from the SIPP, on the understanding that as I received no income at all (and therefore paid no tax) in tax year 23-24, and will also receive no income 24-25, my personal annual allowance of £12,570 was (and will be) unused in both tax years. 
...

Do you still have a chance to cancel or amend that request? If so then amend it to £16,760.

If not then once the dust settles you'll be due to pay 20% tax on £12,570, which clearly isn't what you expected.

Dornfield

my searches online suggested that I could go back to claim the last tax year's unused personal allowance, 

Could you provide a link to somewhere that suggested that?

Although you may not have had any income to use your Personal Allowance that doesn't mean it is a totally lost cause.  Was your wife a higher rate payer in 2023-24?

Do you think not using your Personal Allowance in 2024-25 is a good choice?

With the greatest of respect (and some in my direction would be appreciated; I am far from stupid, and the written word can appear harsh), I can't immediately provide a link, but I promise you I am not making this up.  Perhaps (likely) I misread or misunderstood, but I'm not spending any time on a Friday night searching for a link that, by consensus, probably does not exist.

Yes, my wife is a higher rate taxpayer.  Please could you let me know why that is relevant: what you are thinking in that respect?   Perhaps some transference of her allowances to, or from, me?

I'm not sure about the last bit: I am trying to use my 24-25 personal allowance!  And (erroneously, it appears) the 23-24 allowance too.

Dazed_and_C0nfused

Dornfield said:

my searches online suggested that I could go back to claim the last tax year's unused personal allowance, 

Could you provide a link to somewhere that suggested that?

Although you may not have had any income to use your Personal Allowance that doesn't mean it is a totally lost cause.  Was your wife a higher rate payer in 2023-24?

Do you think not using your Personal Allowance in 2024-25 is a good choice?

With the greatest of respect (and some in my direction would be appreciated; I am far from stupid, and the written word can appear harsh), I can't immediately provide a link, but I promise you I am not making this up.  Perhaps (likely) I misread or misunderstood, but I'm not spending any time on a Friday night searching for a link that, by consensus, probably does not exist.

Yes, my wife is a higher rate taxpayer.  Please could you let me know why that is relevant: what you are thinking in that respect?   Perhaps some transference of her allowances to, or from, me?

I'm not sure about the last bit: I am trying to use my 24-25 personal allowance!  And (erroneously, it appears) the 23-24 allowance too.

Yes, if she hadn't been a higher rate payer then you could have applied for Marriage Allowance and given up £1,260 of your Personal Allowance.

In return she would have got £252 knocked off her tax liability.

Unfortunately though being a higher rate payer makes her ineligible for Marriage Allowance.

Each tax year is looked at separately so if she isn't a higher rate payer in 2024-25 then that option could be worth considering. Depending on what (taxable) pension income you end up having.