Reclaiming tax on small withdrawals from SIPP

Dornfield

For what it is worth, I blame Gemini (Google's AI, which is, I my experience, marginally more trustworthy than Chat GPT or Apple AI).  Thinking back, I'm sure I asked Gemini if I could go back to last tax year as well. What I didn't confirm was that you had to have had income in that earlier tax year.  The response from Gemini is not definitive on this detail.  So there you go.

Gemini said "Yes, you can claim tax relief on the personal allowance (£12,570) for both the previous tax year (23-24) and the current tax year (24-25) if you had no income in either year. This is because the personal allowance is a tax-free amount that you can earn before you start paying income tax. If you have no income, you don't pay any income tax, so you can claim the full personal allowance for both years."

Thanks for the earlier comment on cancelling the withdrawal for the moment.  I think that is the most useful piece of advice received!

Green_hopeful

You can take £16760 without paying income tax in a particular year assuming you have no other income. This is made up of your personal allowance with 25 percent tax free. In the first year you have to reclaim a bit of tax because the SIPP provider/HMRC assumes that you will be paid that amount monthly. It’s called Uncrystallised funds pension lump sums (UFPLS). I took £16760 and paid just over £4000 in tax. There is an online form to complete for HMRC and it took a couple of months for the tax to come back. If you take one now 2024/2025 financial year you can take another in 2025/2026 so April 2025. I am new to this so I’m sure someone will correct my terminology if I haven’t got it quite right. But it’s roughly how it works. This is the tax reclaim form. https://www.gov.uk/guidance/claim-back-tax-on-a-flexibly-accessed-pension-overpayment-p55

Dazed_and_C0nfused

Dornfield said:

For what it is worth, I blame Gemini (Google's AI, which is, I my experience, marginally more trustworthy than Chat GPT or Apple AI).  Thinking back, I'm sure I asked Gemini if I could go back to last tax year as well. What I didn't confirm was that you had to have had income in that earlier tax year.  The response from Gemini is not definitive on this detail.  So there you go.

Gemini said "Yes, you can claim tax relief on the personal allowance (£12,570) for both the previous tax year (23-24) and the current tax year (24-25) if you had no income in either year. This is because the personal allowance is a tax-free amount that you can earn before you start paying income tax. If you have no income, you don't pay any income tax, so you can claim the full personal allowance for both years."

Thanks for the earlier comment on cancelling the withdrawal for the moment.  I think that is the most useful piece of advice received!

You will be entitled to the Personal Allowance for both 2023-24 and 2024-25.  As a UK resident the Personal Allowance isn't something you need to "claim", HMRC will just automatically give you it.

The problem is you didn't have any income in 2023-24 to make use of it.  If you have no (taxable) income then unless you can utilise Marriage Allowance. the Personal Allowance is useless.

Qyburn

Don't leave it too late for this year though. I filled in the request for UFPLS mid December, and it's just been paid. They will get busier and therefore slower as the end of the tax year approaches.

dont_use_vistaprint

I read something about making your very first withdrawal on 1/12  of the amount to prevent the over taxing. Then wait until they adjust your tax code and take an amount equal to 11/12th 


this is what I am planning to do as my experience of claiming tax back has been pretty horrendous. Although if you make a formal complaint to HMRC, they are very good and resolve it very quickly and pay compensation on top

AlanP_2

dont_use_vistaprint said:

I read something about making your very first withdrawal on 1/12  of the amount to prevent the over taxing. Then wait until they adjust your tax code and take an amount equal to 11/12th 


this is what I am planning to do as my experience of claiming tax back has been pretty horrendous. Although if you make a formal complaint to HMRC, they are very good and resolve it very quickly and pay compensation on top

This depends on when in the tax year you do it.

Take 1/12th in April and 11/12ths in May you won't avoid being overtaxed.

Leave the 11/12ths until the following March you would be ok.