UFPLS

WYSPECIAL

I wish to start accessing a DC pension pot with Vanguard.

Am I correct in thinking that if I initially withdraw a small amount then  HMRC will allocate a tax code to this income source and any future UFPLS withdrawals made from this pot will be correctly taxed rather than having emergency tax applied?

dunstonh

WYSPECIAL said:

I wish to start accessing a DC pension pot with Vanguard.

Am I correct in thinking that if I initially withdraw a small amount then  HMRC will allocate a tax code to this income source and any future UFPLS withdrawals made from this pot will be correctly taxed rather than having emergency tax applied?

If you are using regular UFPLS, it will come right over the tax year with each payment.

If you are using single UFPLS, it may come right but it may not depending on when in the tax year you do it and how many you do in the tax year.   Sometimes, even doing a small mop up/balancing withdrawal in payroll month 12 doesn't balance and a reclaim would be required.

squirrelpie

WYSPECIAL said:

I wish to start accessing a DC pension pot with Vanguard.
Am I correct in thinking that if I initially withdraw a small amount then  HMRC will allocate a tax code to this income source and any future UFPLS withdrawals made from this pot will be correctly taxed rather than having emergency tax applied?

The first time you withdraw money from a pension, it is taxed using the emergency code. HMRC then issues a tax code to the pension provider for use with future withdrawals. Whether that tax code is correct for your future withdrawals depends on their amounts and on your other income and tax codes as Dunstonh said. In a simple situation it will be, but if your withdrawals make your income cross a tax boundary or make it appear to HMRC that that might happen then it probably won't be exactly right.

WYSPECIAL

dunstonh said:

WYSPECIAL said:

I wish to start accessing a DC pension pot with Vanguard.

Am I correct in thinking that if I initially withdraw a small amount then  HMRC will allocate a tax code to this income source and any future UFPLS withdrawals made from this pot will be correctly taxed rather than having emergency tax applied?

If you are using regular UFPLS, it will come right over the tax year with each payment.

If you are using single UFPLS, it may come right but it may not depending on when in the tax year you do it and how many you do in the tax year.   Sometimes, even doing a small mop up/balancing withdrawal in payroll month 12 doesn't balance and a reclaim would be required.

Thanks,
Vanguard don't seem to allow you to set up a regular UFPLS payment but you can make as many as you wish.

So it looks like I will have to apply online every time I wish to withdraw money but I would rather have a tax code set up so it doesn't affect any other income streams. Whatever I withdraw I'll be sticking within the 20% tax band for the year.

When I made a small pot withdrawal a couple of years ago HMRC assumed I would get that amount every month and made changes to the tax code my employer at the time was using to recover the extra. It was soon sorted but still inconvenient.

Albermarle

Vanguard don't seem to allow you to set up a regular UFPLS payment but you can make as many as you wish.

You could find it easier to withdraw using Flex access drawdown. For example take a tax free lump sum as a one off, and then set up a regular payment of taxable income. I would assume you would not have to applying online for a regular payment in this case.
You would have to make sure that you took enough tax free cash, so enough of the pension was crystallised to fund the taxable withdrawals.

When I made a small pot withdrawal a couple of years ago HMRC assumed I would get that amount every month and made changes to the tax code 
They always make that assumption, it is the way they work.

MetaPhysical

Sorry for slight thread hijack but I wanted to ask something please along similar lines? Hopefully the OP doesn't mind me asking this.

Say I finish paid employment in March 26.  All future income is from my pensions.

> I receive £20k annually from DB Pension 1, paid monthly
> I receive £10k annually from DB pension 2, paid monthly
> I want to do a £7.5k UFPLS from my DC pension pot in April in the new FY and then every three months thereafter (30k in the FY year)

Which of these gets the 1257L tax code?  Can I ask HMRC to assign it to one that I choose? And that leaves a 0 tax code on the others?  Will emergency tax be applied anywhere in this situation?

Thanks in advance.

dunstonh

WYSPECIAL said:

dunstonh said:

WYSPECIAL said:

I wish to start accessing a DC pension pot with Vanguard.

Am I correct in thinking that if I initially withdraw a small amount then  HMRC will allocate a tax code to this income source and any future UFPLS withdrawals made from this pot will be correctly taxed rather than having emergency tax applied?

If you are using regular UFPLS, it will come right over the tax year with each payment.

If you are using single UFPLS, it may come right but it may not depending on when in the tax year you do it and how many you do in the tax year.   Sometimes, even doing a small mop up/balancing withdrawal in payroll month 12 doesn't balance and a reclaim would be required.

Thanks,
Vanguard don't seem to allow you to set up a regular UFPLS payment but you can make as many as you wish.

So it looks like I will have to apply online every time I wish to withdraw money but I would rather have a tax code set up so it doesn't affect any other income streams. Whatever I withdraw I'll be sticking within the 20% tax band for the year.

When I made a small pot withdrawal a couple of years ago HMRC assumed I would get that amount every month and made changes to the tax code my employer at the time was using to recover the extra. It was soon sorted but still inconvenient.

Could you take the 25% TFC and put it into S&S ISAs? (it may take several tax years depending on fund size)

Then you draw the 75% using monthly drawdown and the 25% from the ISA.

Dazed_and_C0nfused

MetaPhysical said:

Sorry for slight thread hijack but I wanted to ask something please along similar lines? Hopefully the OP doesn't mind me asking this.

Say I finish paid employment in March 26.  All future income is from my pensions.

> I receive £20k annually from DB Pension 1, paid monthly
> I receive £10k annually from DB pension 2, paid monthly
> I want to do a £7.5k UFPLS from my DC pension pot in April in the new FY and then every three months thereafter (30k in the FY year)

Which of these gets the 1257L tax code?  Can I ask HMRC to assign it to one that I choose? And that leaves a 0 tax code on the others?  Will emergency tax be applied anywhere in this situation?

Thanks in advance.

It would probably be whichever of the first two started first. 

And the UFPLS one.  But after the first UFPLS payment, where the emergency code 1257L is used, a new code will be issued, most likely BR.

Given you have (for HMRC purposes) potentially erratic income you might want to keep your estimated pension income updated via your Personal Tax Account once all pensions are in payment.

If the UFPLS is reported as a quarterly payment you should be ok but that will depend on your pension provider.

squirrelpie

MetaPhysical said:
> I receive £20k annually from DB Pension 1, paid monthly
> I receive £10k annually from DB pension 2, paid monthly
> I want to do a £7.5k UFPLS from my DC pension pot in April in the new FY and then every three months thereafter (30k in the FY year)
Which of these gets the 1257L tax code?  Can I ask HMRC to assign it to one that I choose? And that leaves a 0 tax code on the others?  Will emergency tax be applied anywhere in this situation?

An emergency code will be applied to the first payment from each pension in turn. After that you will be issued with a new code for each. Yes, I would phone HMRC and ask them to assign the whole of my personal allowance to the £20k pension, and ask them to assign BR to the other two. You may end up with excess tax paid on the three-mothly payments unless you can persuade them to account or it correctly.

green_man

I wouldn’t assume you will get the correct code allocated by the HMRC, some manage it but I haven’t.  On the positive side the online P55 process is pretty straightforward and usually results in a refund in around 4-6 weeks IME.

I am on my sixth year of a single UFPLS withdrawal and despite me contacting HMRC several times and asking them to allocate an appropriate code they seem to think that collecting a load of tax, processing forms and refunding it all is better use of everyone’s time!

squirrelpie

green_man said:

despite me contacting HMRC several times and asking them to allocate an appropriate code they seem to think that collecting a load of tax, processing forms and refunding it all is better use of everyone’s time!

Maybe they've been caught before by people who say they're going to do annual withdrawals, and then make withdrawals more frequently and are under-taxed in consequence? I can imagine it takes a lot more effort to recover underpaid tax than to refund overpaid tax!