Sipp beneficiary

DRS1

Albermarle said:

DRS1 said:

I thought you would be charged income tax at your marginal rate.  Are you a 40% tax payer?

It depends on the pattern of withdrawals.
If you take a £5K lump sum in April for example, the tax system works on the basis that you will be taking £5K every month, and taxes you as if you have an income of £60K pa, so at 40%.
You just have to claim back the overpaid tax, if you are actually a 20% taxpayer.

Surely you wouldn't have 40% applied to all the withdrawal in that case.  You'd get bands of 0%, 20% 40% and 45% (with the annual thresholds apportioned to monthly).  This sounds like they would operate a D0 code.

run_rabbit55

DRS1 said:

I thought you would be charged income tax at your marginal rate.  Are you a 40% tax payer?

DRS1 said:

I thought you would be charged income tax at your marginal rate.  Are you a 40% tax payer?

20% tax rate payer but at least the first withdrawal is charged at emergency tax rate

Albermarle

DRS1 said:

Albermarle said:

DRS1 said:

I thought you would be charged income tax at your marginal rate.  Are you a 40% tax payer?

It depends on the pattern of withdrawals.
If you take a £5K lump sum in April for example, the tax system works on the basis that you will be taking £5K every month, and taxes you as if you have an income of £60K pa, so at 40%.
You just have to claim back the overpaid tax, if you are actually a 20% taxpayer.

Surely you wouldn't have 40% applied to all the withdrawal in that case.  You'd get bands of 0%, 20% 40% and 45% (with the annual thresholds apportioned to monthly).  This sounds like they would operate a D0 code.

I am not an expert but I think you are right.
However the problem gets worse the more you take out at once. So if you took £15K, you would be taxed as if you earned £180K pa where I think you lose all your personal allowance and most of the tax would be at 40 and even 45%

run_rabbit55

dunstonh said:

run_rabbit55 said:

So spoke to aj bell and can have the full 107k placed in my own flexi access account. I want to take out small amounts over time but staying within my 20% tax band. They have confirmed they will place a 40% tax charge on withdrawal which I presume I can claim back straight away from hmrc? Will every future withdrawal be the same? Or will they get my tax code at some point? 

Pension draws are made using PAYE.    Month 1 tax code would be applied to the first wtidhrawal (often known as emergency tax) but HMRC will notify the platform of the tax code to use with later withdrawals.

The extra tax taken in month 1 would be collected/refunded over the remainder of the tax year to end up with the correct amount in the final payroll month.    That is unless your first payment is in March (month 12), where it will then require communication with HMRC.

So If I was planning on taking 2 or three payments in this tax year I would expect to pay 40% on first then hopefully 20% on the following? Do I have to wait till tax year end to claim the extra 20% on the original 40% charged? I'm only going to take out what keeps me within the 20% tax rate payers threshold hold

DRS1

run_rabbit55 said:

DRS1 said:

I thought you would be charged income tax at your marginal rate.  Are you a 40% tax payer?

DRS1 said:

I thought you would be charged income tax at your marginal rate.  Are you a 40% tax payer?

20% tax rate payer but at least the first withdrawal is charged at emergency tax rate

My first annuity payment last year was done on emergency tax rate - it came to about 13.5% tax.   As @Albermarle says it depends on how much you withdraw at one go but if you go for smallish regular withdrawals (monthly say) then you may not need to reclaim any tax.  HMRC will probably give you a tax code before the second month's payment is due (even if you don't go for monthly withdrawals)

DRS1

run_rabbit55 said:

dunstonh said:

run_rabbit55 said:

So spoke to aj bell and can have the full 107k placed in my own flexi access account. I want to take out small amounts over time but staying within my 20% tax band. They have confirmed they will place a 40% tax charge on withdrawal which I presume I can claim back straight away from hmrc? Will every future withdrawal be the same? Or will they get my tax code at some point? 

Pension draws are made using PAYE.    Month 1 tax code would be applied to the first wtidhrawal (often known as emergency tax) but HMRC will notify the platform of the tax code to use with later withdrawals.

The extra tax taken in month 1 would be collected/refunded over the remainder of the tax year to end up with the correct amount in the final payroll month.    That is unless your first payment is in March (month 12), where it will then require communication with HMRC.

So If I was planning on taking 2 or three payments in this tax year I would expect to pay 40% on first then hopefully 20% on the following? Do I have to wait till tax year end to claim the extra 20% on the original 40% charged? I'm only going to take out what keeps me within the 20% tax rate payers threshold hold

You may find that any tax refund is done via the PAYE system - I had one annuity payment which was more than the gross amount which confused me until I realised it was a tax refund.

DRS1

I think if you go for 2 or 3 payments a year you would be advised to take the last one in March.  People will correct me but that may help sweep up (ie refund) any tax that may have been over paid on earlier withdrawals

Notepad_Phil

DRS1 said:

I think if you go for 2 or 3 payments a year you would be advised to take the last one in March.  People will correct me but that may help sweep up (ie refund) any tax that may have been over paid on earlier withdrawals

That is correct - just make sure that you start early enough so that you don't run into timing issues with all the other end-of-tax-year requests that many people leave close to April 5th. I think AJ Bell are fairly good when it comes to admin, so probably not so much of an issue there, but could be more of an issue with some of the older and clunkier systems.

run_rabbit55

How would taking withdrawals effect universal credit. I won't be taking out huge amounts and keeping under the 6k savings threshold. Any money taken will be going straight out on home improvements ect. Would it be classed as income and have to be declared 

DRS1

I think a retirement pension counts as unearned income for UC but this is more like a widows pension and I am not sure if they would treat that differently.  Hopefully someone who knows about benefits will be along to help more (or you could try asking on the Benefits board)