retiring early taking pension drawdown

watervolume

Is the following OK to minimise tax complications?

On the very first time, draw down 1/12 of your personal allowance, then assuming you're now on the tax code of 1257L by March, draw down the rest of your personal allowance in March. Then for subsequent years, draw down the full personal allowance amount in March.

Perhaps to simplify further, just draw down the full personal allowance in March, even for the first year since the emergency tax will start with 1257 anyway?

Dazed_and_C0nfused

Juno_Moneta said:

Nope. Dazed_and_C0nfused said:

But 1257L is the emergency tax code.

You seem to have a fundamental misunderstanding of how PAYE works.

Why so passive aggressive?

You’re actually wrong, 1257L is NOT the emergency tax code by itself. 

Let’s bring Gov UK in for the definitive answer:

“Tax code 1257L

The most common tax code for tax year 2025 to 2026 is 1257L. It’s used for most people with one job and no untaxed income, unpaid tax or taxable benefits (for example a company car).

1257L is an emergency tax code only if followed by ‘W1’, ‘M1’ or ‘X’. ”

https://www.gov.uk/employee-tax-codes

Unfortunately gov.uk don't always like to stick to the facts.

1257L is a tax code.

W1, M1 and X all represent the basis on which that tax code is operated (the basis of operation).

1257L is the emergency tax code.  Which can be operated on either a cumulative or non cumulative basis of operation.

If you want HMRC's view on this have a look at the introduction section of the PX9, the HMRC letter used to notify employers and pension payers about tax code for the new tax year.

https://assets.publishing.service.gov.uk/media/679b7c4c5ac7a35d1228f5d0/P9X_2025_Tax_codes_to_use_from_6_April_2025.pdf

Dazed_and_C0nfused

watervolume said:

Is the following OK to minimise tax complications?

On the very first time, draw down 1/12 of your personal allowance, then assuming you're now on the tax code of 1257L by March, draw down the rest of your personal allowance in March. Then for subsequent years, draw down the full personal allowance amount in March.

Perhaps to simplify further, just draw down the full personal allowance in March, even for the first year since the emergency tax will start with 1257 anyway?

The first taxable payment will almost certainly have the code applied on a non cumulative basis.

So £12,570 will be based on the basis you are getting £150k/year i.e. a mix of 0% 20%, 40% and 45% tax.

OldScientist

clairbear_3 said:

Hi Im retiring early and considering taking the £12500 each year from my private pension  how do I avoid the taxman taking  20% tax and having to reclaim it? is it better to take it monthly or a one off payment? 

Going back to the original question:

Yes, monthly amounts smaller than 1/12 of the annual allowance is, AFAIK, the only way of avoiding having to reclaim the tax (although, according to various threads on these boards that is a relatively painless process).

FWIW, the first two withdrawals from one of our SIPPs occurred in the same month (our error, not the platform's) and the second one was taxed as though the combined monthly withdrawals would then have occurred every month. Subsequent withdrawals have not been taxed.

Juno_Moneta

Dazed_and_C0nfused said:

But 1257L is the emergency tax code.

1257L is the emergency tax code.

Well all I will say is that my tax code is currently 1257L (just double checked on HMRC app) and I most definitely am not ‘in an emergency situation’, tax being paid is quite normal since start of tax year.

I believe this is the most common tax code most people have (as it simply reflects the 12570 personal allowance)  - perhaps others could check theirs and confirm they don’t consider themselves under emergency treatment!

Marcon

1257L is the standard tax code. It only becomes an emergency (temporary) tax code if there's an extra bit added on the end:

If your tax code ends in ‘W1’ or ‘M1’ or ‘X’, you’re on a temporary emergency tax code. For example:

• 1257L W1 - used when you’re paid weekly
• 1257L M1 - used when you’re paid monthly
• 1257L X -  used if when you get paid varies

Source: https://www.gov.uk/tax-codes/emergency-tax-codes