Understanding Tax on SIPP

marycanary

I recently withdrew £14500 from my SIPP using UFPLS. I received £3,625 as the tax-free element and £7,572.94 as the taxed amount. While I understand how the £3,625 was calculated, I am unsure about the calculation for the £7,572.94.

Could someone please explain the steps involved in this calculation?

Thank you!

molerat

The taxable element was £10875.  Tax would have been deducted using the emergency code of 1275LM1.  That means, on top of the 25% tax free of £3625, £1048.26 was tax free, the next £3142 was charged at 20% and the remainder at 40%, a total of £3302.06 tax deducted. If you remain a basic rate tax payer the tax should be £2175.  HMRC will sort out repaying any excess tax sometime in the next year.  Looking at your other posts it seems you were too late to avoid this tax deduction.

marycanary

molerat said:

The taxable element was £10875.  Tax would have been deducted using the emergency code of 1275LM1.  That means, on top of the 25% tax free of £3625, £1048.26 was tax free, the next £3142 was charged at 20% and the remainder at 40%, a total of £3302.06 tax deducted. If you remain a basic rate tax payer the tax should be £2175.  HMRC will sort out repaying any excess tax sometime in the next year.  Looking at your other posts it seems you were too late to avoid this tax deduction.

Thank you for your help, I do appreciate it. I'm afraid I don't understand the last sentence; the withdrawal was made on the 25th March.  I intend to make further similar withdrawals in future years so what is the best time to make them? I chose the end of March so the money could be reinvested in a S&S ISA as soon as possible.

Thanks again.

eastcorkram

I'm sure I've read on here that if you withdraw it in March, it was a way of ensuring the correct amount of tax was deducted, rather than being over taxed and having to reclaim some of it. 
So, now I'm even more confused. Which to be fair, is probably my normal state. 

[Deleted User]

eastcorkram said:

I'm sure I've read on here that if you withdraw it in March, it was a way of ensuring the correct amount of tax was deducted, rather than being over taxed and having to reclaim some of it. 
So, now I'm even more confused. Which to be fair, is probably my normal state. 

Not if an M1 code was applied! This means that only one months personal allowance (£1047) and one months basic rate band (£3141) would be available against the taxable element of the withdrawal. 

Any taxable amount over £4189, therefore, would suffer tax at 40%. 

molerat

marycanary said:

molerat said:

The taxable element was £10875.  Tax would have been deducted using the emergency code of 1275LM1.  That means, on top of the 25% tax free of £3625, £1048.26 was tax free, the next £3142 was charged at 20% and the remainder at 40%, a total of £3302.06 tax deducted. If you remain a basic rate tax payer the tax should be £2175.  HMRC will sort out repaying any excess tax sometime in the next year.  Looking at your other posts it seems you were too late to avoid this tax deduction.

Thank you for your help, I do appreciate it. I'm afraid I don't understand the last sentence; the withdrawal was made on the 25th March.  I intend to make further similar withdrawals in future years so what is the best time to make them? I chose the end of March so the money could be reinvested in a S&S ISA as soon as possible.

Thanks again.

From your other posts you became aware that you "needed to do something" only a few weeks ago.  If you had started earlier you could have taken a small amount a couple of months ago so HMRC would issue an appropriate code then go for the remainder in March meaning the year end tax would have been correct.

marycanary

molerat said:

marycanary said:

molerat said:

The taxable element was £10875.  Tax would have been deducted using the emergency code of 1275LM1.  That means, on top of the 25% tax free of £3625, £1048.26 was tax free, the next £3142 was charged at 20% and the remainder at 40%, a total of £3302.06 tax deducted. If you remain a basic rate tax payer the tax should be £2175.  HMRC will sort out repaying any excess tax sometime in the next year.  Looking at your other posts it seems you were too late to avoid this tax deduction.

Thank you for your help, I do appreciate it. I'm afraid I don't understand the last sentence; the withdrawal was made on the 25th March.  I intend to make further similar withdrawals in future years so what is the best time to make them? I chose the end of March so the money could be reinvested in a S&S ISA as soon as possible.

Thanks again.

From your other posts you became aware that you "needed to do something" only a few weeks ago.  If you had started earlier you could have taken a small amount a couple of months ago so HMRC would issue an appropriate code then go for the remainder in March meaning the year end tax would have been correct.

I see, thank you.