Help me understand why my drawdown had been taxed

proudgecko

I requested a drawdown of £4400 in this tax year ( no previous drawdowns in this tax year) from HL SIPP drawdown account
the HL payment notification states that tax code is 500T
gross payment £4400
PAYE tax deducted £964.46

Why have I been taxed at all, I thought the tax code meant I could drawdown up to £5000 before being taxed

also why the amount of tax - it’s about 22%

Separately I expect a tiny income of around £300 from a paye job, and interest on savings - I expect to be on the border of paying no tax at all or a little over, within this tax year

im relatively new to SIPPs and drawdown and would like to understand how it all works 

thanks for any help anyone can give me

Dazed_and_C0nfused

proudgecko said:

I requested a drawdown of £4400 in this tax year ( no previous drawdowns in this tax year) from HL SIPP drawdown account
the HL payment notification states that tax code is 500T
gross payment £4400
PAYE tax deducted £964.46

Why have I been taxed at all, I thought the tax code meant I could drawdown up to £5000 before being taxed

also why the amount of tax - it’s about 22%

Separately I expect a tiny income of around £300 from a paye job, and interest on savings - I expect to be on the border of paying no tax at all or a little over, within this tax year

im relatively new to SIPPs and drawdown and would like to understand how it all works 

thanks for any help anyone can give me

Was this payment in month 1 of the current tax year?

If so tax code 500T means just the first £417 would be covered by tax code allowances. 

The remaining £3,983 would be taxed at a mix of 20% and 40%.  Not 22%.  

Do you plan on taking another payment in month 2?

proudgecko

Yes month 1
but it was a one off drawdown, not expecting to drawdown again

are they assuming I’ll drawdown 4400 each month?

Dazed_and_C0nfused

proudgecko said:

Yes month 1
but it was a one off drawdown, not expecting to drawdown again

are they assuming I’ll drawdown 4400 each month?

That is how PAYE has worked for the last 80 years or so yes.

The tax will be recalculated by your pension company each time you take a taxable payment from the pension.

So take say £10 in month 2 and your tax will code allowances will then be £417 x 2 and you will also have two months of basic rate band so no 40% tax would be due.  So you would receive £10 plus maybe £250 tax refund.

Marcon

proudgecko said:

Yes month 1
but it was a one off drawdown, not expecting to drawdown again

are they assuming I’ll drawdown 4400 each month?

I think you'll find HMRC works on what they see rather than anything people might plan to do... They have enough trouble with reality, never mind predicting the future!

Sarahspangles

proudgecko said:

I requested a drawdown of £4400 in this tax year ( no previous drawdowns in this tax year) from HL SIPP drawdown account
the HL payment notification states that tax code is 500T
gross payment £4400
PAYE tax deducted £964.46

Why have I been taxed at all, I thought the tax code meant I could drawdown up to £5000 before being taxed

also why the amount of tax - it’s about 22%

Separately I expect a tiny income of around £300 from a paye job, and interest on savings - I expect to be on the border of paying no tax at all or a little over, within this tax year

im relatively new to SIPPs and drawdown and would like to understand how it all works 

thanks for any help anyone can give me

I believe you can submit a P55 to reclaim the tax, but I'm not sure how this process interacts with other income.

If you haven't already, set up a personal tax account online or via the HMRC app as the online processes are generally the fastest.

Hoenir

Will you have other sources of taxable income before 5th April 2026 ? 

DavidT67

proudgecko said:

I requested a drawdown of £4400 in this tax year ( no previous drawdowns in this tax year) from HL SIPP drawdown account
the HL payment notification states that tax code is 500T
gross payment £4400
PAYE tax deducted £964.46

Why have I been taxed at all, I thought the tax code meant I could drawdown up to £5000 before being taxed

also why the amount of tax - it’s about 22%

Separately I expect a tiny income of around £300 from a paye job, and interest on savings - I expect to be on the border of paying no tax at all or a little over, within this tax year

im relatively new to SIPPs and drawdown and would like to understand how it all works 

thanks for any help anyone can give me

HL will have sent you a comprehensive booklet and links to guidance on how pension drawdown works, including the tax aspect.

If the pension payment is indeed a one-off for the current tax year, then you can submit form P55 online via your HMRC Gov UK personal tax account and you'll receive the excess tax deducted into your bank account within two weeks.

https://www.gov.uk/guidance/claim-back-tax-on-a-flexibly-accessed-pension-overpayment-p55

proudgecko

Thanks all, makes sense now. I’ll apply for refund

dunstonh

P55s are taking about 2 weeks currently if submitted online.   So, use that method rather than the paper way.