can you explain what has happened with this tax deduction from pension?

Brie

I have finally arranged to take a small work pension (DC) in drawdown over 2 tax years.  (that's one of the options from the scheme rather than transferring it out)

It's not a lot of money but obviously I want my money in my bank account and think I've been overcharged for income tax.

Now I've phoned the admins and they have told me that yes I'm taking £10k and yes 25% was tax free and that they'd been given a tax code of 1257L.  My total income** means my tax rate is 20%.  So I calculate that I should be paid £8500.  But I've been paid £8047.94.

The admin said I should ring HMRC and ask for a T35Z form to reclaim overpaid tax.  Frankly I don't need the money urgently so will be happy to wait until the new tax year rather than be in a queue on the phone for hours.  

But can anyone enlighten me as to how they might have come to the odd number to pay me?  The only way I can think the amount could be correct is if they think my income is above £50k which it definitely isn't.


** part time salary, DB pension, SP, tiddly foreign SP, tiny bit of interest.  tax codes for salary and DB pension take into account the SP.  

molerat

If this is a first withdrawal then the code used would be 1257LM1 meaning the first £1048.26 was tax free, £3142 taxed at 20% and the remainder at 40%.  You will need to reclaim the additional tax back.  HMRC should issue BR for next year.

The only way I can think the amount could be correct is if they think my income is above £50k which it definitely isn't.

You have drawn more than 1/12th of 50K in one month and the emergency code has taxed accordingly.

Hoenir

Brie said:

** part time salary, DB pension, SP, tiddly foreign SP, tiny bit of interest.  tax codes for salary and DB pension take into account the SP.  

Then it will come out in the wash when the HMRC reconcile your personal tax account after the tax year ends.  

Brie

molerat said:

If this is a first withdrawal then the code used would be 1257LM1 meaning the first £1048.26 was tax free, £3142 taxed at 20% and the remainder at 40%.  You will need to reclaim the additional tax back.  HMRC should issue BR for next year.

The only way I can think the amount could be correct is if they think my income is above £50k which it definitely isn't.

You have drawn more than 1/12th of 50K in one month and the emergency code has taxed accordingly.

sorry - but I can't get your figures to work. can you recheck them? and why would the tax free be so low when the admin said it was 25% of the total being withdrawn?

the thing I do understand is that £10k in one month looks like I have a very high income.  I guess the same will happen again next month when they pay the remainder which is about £15k.

kempiejon

Hoenir said:

Brie said:

** part time salary, DB pension, SP, tiddly foreign SP, tiny bit of interest.  tax codes for salary and DB pension take into account the SP.  

Then it will come out in the wash when the HMRC reconcile your personal tax account after the tax year ends.  

I had a similar problem last year which was indeed sorted out when HMRC reconciled my year end, June I think and the rebate was sent to my bank account. January this year I took a lump from my pension and was similarly taxed on a month one code so had a refund due. I filled in a form online, P53Z? in February and I am told to expect a conclusion this week. I needed a P60 from the pension and an online tax account. Might save time on the phone?

eskbanker

Brie said:

molerat said:

If this is a first withdrawal then the code used would be 1257LM1 meaning the first £1048.26 was tax free, £3142 taxed at 20% and the remainder at 40%.  You will need to reclaim the additional tax back.  HMRC should issue BR for next year.

The only way I can think the amount could be correct is if they think my income is above £50k which it definitely isn't.

You have drawn more than 1/12th of 50K in one month and the emergency code has taxed accordingly.

sorry - but I can't get your figures to work. can you recheck them? and why would the tax free be so low when the admin said it was 25% of the total being withdrawn?

25% is tax-free, and then the remaining £7500 is taxed as above, i.e. the first £1048.26 (of that £7500) was tax free, £3142 taxed at 20% and the remainder at 40%.

af1963

2500 tax free.   Of the remaining 7500, the first 1048.26 taxable but within allowance. The next 3142 taxed at 20% ( tax paid 628) and the remaining balance of 3310 taxed at 40% ( tax paid 1324).  10000 minus 628 minus 1324 is about 8048.

molerat

Brie said:

molerat said:

If this is a first withdrawal then the code used would be 1257LM1 meaning the first £1048.26 was tax free, £3142 taxed at 20% and the remainder at 40%.  You will need to reclaim the additional tax back.  HMRC should issue BR for next year.

The only way I can think the amount could be correct is if they think my income is above £50k which it definitely isn't.

You have drawn more than 1/12th of 50K in one month and the emergency code has taxed accordingly.

sorry - but I can't get your figures to work. can you recheck them? and why would the tax free be so low when the admin said it was 25% of the total being withdrawn?

the thing I do understand is that £10k in one month looks like I have a very high income.  I guess the same will happen again next month when they pay the remainder which is about £15k.

You will need to look at your on line tax account to see what code has been allocated to next year, they may do something weird so you will have to make sure it shows the correct estimate against each income stream.

Brie

Thanks all for your help.  It's the assumption I'll be getting £10k every month that did it for me.  Next year will be another train wreck given the second (and final) payment being made and me stopping working so HMRC will likely issue me a number of tax codes!!!  After that I should be ok (I think) as it's just going to be SPs, FS scheme and investments being cashed in.  (I think.)

eastcorkram

If it's not especially needed, wouldn't it make more sense, and be more straightforward tax wise, if you drew it down at say, £500 a month?

Hoenir

eastcorkram said:

If it's not especially needed, wouldn't it make more sense, and be more straightforward tax wise, if you drew it down at say, £500 a month?

Or draw it in Month 12 of the tax year, i.e. March 2026. The tax system is what it is. Working with it avoids a lot of unneccessary short term aggravation.