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Which way to tackle drawdown, turning 55, during first tax year ?
Comments
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Dazed_and_C0nfused said:
Assuming your preference is take some taxable pension income in 2026/27 then you could consider this.Sea_Shell said:I will have approx £4000 of "taxable" interest in the current and future* few tax years, so within the starter rate.
No other income from anywhere.
*Unless we move more to ISAs this tax year, we have about £30k 'room' between us, or change the car! 😉
Take £1047 as the first taxable payment. The emergency tax code (1257L) should be used so no tax will be deducted.
That will prompt HMRC to calculate a code however that is likely to include a deduction for interest as they will think your expected pension income will be just ~£4k (to 5 April 2027).
Once that code has been issued log into your Personal Tax Account and update your expected pension income for 2026/27 to £12,570. That means there are no spare allowances so the interest will be removed from the code and you will be 🤞 back on the emergency code but on a cumulative basis.
Take additional taxable income in the remaining 3-4 months of the tax year. Ideally not exceeding the tax code allowances available at that time i.e. for tax month 10 it would be £10,482.
All the above assumes Marriage Allowance isn't a factor.
Rereading this, it seems a hybrid of (2) and (4). Take one lower payment, to set the tax code, then take a lump sum. Assuming this is something that Aviva allow.
I've just looked at my current tax code for 25/26, and it is 1071N
This includes MA (which I shall be removing before the end of the tax year) and £590 of taxable interest, which was from interest earned in 23/24.
AIUI my tax code for 26/27 SHOULD then be based on standard PA, less £2900 of taxable interest earned during 24/25.
So, 967L.
The other weird thing is that when I look at my estimated income on-line, its showing an income of £8656. Considering I left employment back in 2019, it's a bit odd that they still have this estimated figure. I did update my records to tell them that they were no longer my employer, years ago.
How's it going, AKA, Nutwatch? - 12 month spends to date = 3.24% of current retirement "pot" (as at end December 2025)0 -
But 967L would mean tax would be deducted if you wanted to take £12,570 in a single tax year.Sea_Shell said:Dazed_and_C0nfused said:
Assuming your preference is take some taxable pension income in 2026/27 then you could consider this.Sea_Shell said:I will have approx £4000 of "taxable" interest in the current and future* few tax years, so within the starter rate.
No other income from anywhere.
*Unless we move more to ISAs this tax year, we have about £30k 'room' between us, or change the car! 😉
Take £1047 as the first taxable payment. The emergency tax code (1257L) should be used so no tax will be deducted.
That will prompt HMRC to calculate a code however that is likely to include a deduction for interest as they will think your expected pension income will be just ~£4k (to 5 April 2027).
Once that code has been issued log into your Personal Tax Account and update your expected pension income for 2026/27 to £12,570. That means there are no spare allowances so the interest will be removed from the code and you will be 🤞 back on the emergency code but on a cumulative basis.
Take additional taxable income in the remaining 3-4 months of the tax year. Ideally not exceeding the tax code allowances available at that time i.e. for tax month 10 it would be £10,482.
All the above assumes Marriage Allowance isn't a factor.
Rereading this, it seems a hybrid of (2) and (4). Take one lower payment, to set the tax code, then take a lump sum. Assuming this is something that Aviva allow.
I've just looked at my current tax code for 25/26, and it is 1071N
This includes MA (which I shall be removing before the end of the tax year) and £590 of taxable interest, which was from interest earned in 23/24.
AIUI my tax code for 26/27 SHOULD then be based on standard PA, less £2900 of taxable interest earned during 24/25.
So, 967L.
The other weird thing is that when I look at my estimated income on-line, its showing an income of £8656. Considering I left employment back in 2019, it's a bit odd that they still have this estimated figure. I did update my records to tell them that they were no longer my employer, years ago.
By telling HMRC (once the pension is being paid) that you expect to get £12,570 there are no spare allowances for the interest to use up in your tax code so it would be changed to 1257L.
Where is this estimated income shown on line? It's almost certainly just an old figure that is used year after year until something actually changes, like your pension starting and being a new source of PAYE income.0 -
Dazed_and_C0nfused said:
But 967L would mean tax would be deducted if you wanted to take £12,570 in a single tax year.Sea_Shell said:Dazed_and_C0nfused said:
Assuming your preference is take some taxable pension income in 2026/27 then you could consider this.Sea_Shell said:I will have approx £4000 of "taxable" interest in the current and future* few tax years, so within the starter rate.
No other income from anywhere.
*Unless we move more to ISAs this tax year, we have about £30k 'room' between us, or change the car! 😉
Take £1047 as the first taxable payment. The emergency tax code (1257L) should be used so no tax will be deducted.
That will prompt HMRC to calculate a code however that is likely to include a deduction for interest as they will think your expected pension income will be just ~£4k (to 5 April 2027).
Once that code has been issued log into your Personal Tax Account and update your expected pension income for 2026/27 to £12,570. That means there are no spare allowances so the interest will be removed from the code and you will be 🤞 back on the emergency code but on a cumulative basis.
Take additional taxable income in the remaining 3-4 months of the tax year. Ideally not exceeding the tax code allowances available at that time i.e. for tax month 10 it would be £10,482.
All the above assumes Marriage Allowance isn't a factor.
Rereading this, it seems a hybrid of (2) and (4). Take one lower payment, to set the tax code, then take a lump sum. Assuming this is something that Aviva allow.
I've just looked at my current tax code for 25/26, and it is 1071N
This includes MA (which I shall be removing before the end of the tax year) and £590 of taxable interest, which was from interest earned in 23/24.
AIUI my tax code for 26/27 SHOULD then be based on standard PA, less £2900 of taxable interest earned during 24/25.
So, 967L.
The other weird thing is that when I look at my estimated income on-line, its showing an income of £8656. Considering I left employment back in 2019, it's a bit odd that they still have this estimated figure. I did update my records to tell them that they were no longer my employer, years ago.
By telling HMRC (once the pension is being paid) that you expect to get £12,570 there are no spare allowances for the interest to use up in your tax code so it would be changed to 1257L.
Where is this estimated income shown on line? It's almost certainly just an old figure that is used year after year until something actually changes, like your pension starting and being a new source of PAYE income.
It's on the PAYE Income Tax summary section, under "How your income tax is calculated".
And yes, they are still showing my ex employer under PAYE Income Tax history.
It has "no history" for the tax years from 20/21 until 24/25. So it appears to only get updated after the end of the tax year, having not actually earned anything.
Would I be better off on Self Assessment? Does this allow pension payments tax free, with then me having to declare all taxable income and interest in the November after the end of the tax year? Is this easy if you have good records?
How's it going, AKA, Nutwatch? - 12 month spends to date = 3.24% of current retirement "pot" (as at end December 2025)0 -
No, it would make no difference. Really not sure what the problem is to be honest when you can easily avoid any tax being deducted as already explained.Sea_Shell said:Dazed_and_C0nfused said:
But 967L would mean tax would be deducted if you wanted to take £12,570 in a single tax year.Sea_Shell said:Dazed_and_C0nfused said:
Assuming your preference is take some taxable pension income in 2026/27 then you could consider this.Sea_Shell said:I will have approx £4000 of "taxable" interest in the current and future* few tax years, so within the starter rate.
No other income from anywhere.
*Unless we move more to ISAs this tax year, we have about £30k 'room' between us, or change the car! 😉
Take £1047 as the first taxable payment. The emergency tax code (1257L) should be used so no tax will be deducted.
That will prompt HMRC to calculate a code however that is likely to include a deduction for interest as they will think your expected pension income will be just ~£4k (to 5 April 2027).
Once that code has been issued log into your Personal Tax Account and update your expected pension income for 2026/27 to £12,570. That means there are no spare allowances so the interest will be removed from the code and you will be 🤞 back on the emergency code but on a cumulative basis.
Take additional taxable income in the remaining 3-4 months of the tax year. Ideally not exceeding the tax code allowances available at that time i.e. for tax month 10 it would be £10,482.
All the above assumes Marriage Allowance isn't a factor.
Rereading this, it seems a hybrid of (2) and (4). Take one lower payment, to set the tax code, then take a lump sum. Assuming this is something that Aviva allow.
I've just looked at my current tax code for 25/26, and it is 1071N
This includes MA (which I shall be removing before the end of the tax year) and £590 of taxable interest, which was from interest earned in 23/24.
AIUI my tax code for 26/27 SHOULD then be based on standard PA, less £2900 of taxable interest earned during 24/25.
So, 967L.
The other weird thing is that when I look at my estimated income on-line, its showing an income of £8656. Considering I left employment back in 2019, it's a bit odd that they still have this estimated figure. I did update my records to tell them that they were no longer my employer, years ago.
By telling HMRC (once the pension is being paid) that you expect to get £12,570 there are no spare allowances for the interest to use up in your tax code so it would be changed to 1257L.
Where is this estimated income shown on line? It's almost certainly just an old figure that is used year after year until something actually changes, like your pension starting and being a new source of PAYE income.
It's on the PAYE Income Tax summary section, under "How your income tax is calculated".
And yes, they are still showing my ex employer under PAYE Income Tax history.
It has "no history" for the tax years from 20/21 until 24/25. So it appears to only get updated after the end of the tax year, having not actually earned anything.
Would I be better off on Self Assessment? Does this allow pension payments tax free, with then me having to declare all taxable income and interest in the November after the end of the tax year? Is this easy if you have good records?0 -
I was a bit confused when you mentioned your current tax code, tax codes are applied per employment/pension, so if you don't have a current employment/pension in payment then you shouldn't even have a tax code. It appears the tax code you're talking about is from an old employer? And they're estimating an income of £8656 from this employment even though it ended years ago?
If you start drawing a pension it'll have a completely separate tax code, if an income is still assumed from employment then the tax code on the pension would be much reduced as they think most of the PA will be used by the employment income.
So I think the first step is to get the old employment removed from the system, you can do this now. Then when the pension starts getting paid, it would probably initially be on the emergency tax code but HMRC will probably update it to PA minus untaxed interest. You can then give them an estimated income from the pension of £12570. This should update the tax code to 1257L.
Then if you draw £12570 over Dec-Mar you should pay no tax overall, although you may pay some initially and get it refunded. For instance if you drew £3143 for 4 months you may pay some tax in Dec and possibly Jan if the tax code isn't sorted by then, but you'd get it all back in Feb, automatically via the PAYE system, you don't need to claim.
If you really want to avoid paying tax even temporarily, then you could make lower withdrawals eg £500 or so until the tax code is sorted, provided it's sorted in time for the March payment you'll pay no tax if the total withdrawal is within the PA.
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With the greatest of respect there is absolutely no need to try and do that.zagfles said:I was a bit confused when you mentioned your current tax code, tax codes are applied per employment/pension, so if you don't have a current employment/pension in payment then you shouldn't even have a tax code. It appears the tax code you're talking about is from an old employer? And they're estimating an income of £8656 from this employment even though it ended years ago?
If you start drawing a pension it'll have a completely separate tax code, if an income is still assumed from employment then the tax code on the pension would be much reduced as they think most of the PA will be used by the employment income.
So I think the first step is to get the old employment removed from the system, you can do this now. Then when the pension starts getting paid, it would probably initially be on the emergency tax code but HMRC will probably update it to PA minus untaxed interest. You can then give them an estimated income from the pension of £12570. This should update the tax code to 1257L.
Then if you draw £12570 over Dec-Mar you should pay no tax overall, although you may pay some initially and get it refunded. For instance if you drew £3143 for 4 months you may pay some tax in Dec and possibly Jan if the tax code isn't sorted by then, but you'd get it all back in Feb, automatically via the PAYE system, you don't need to claim.
If you really want to avoid paying tax even temporarily, then you could make lower withdrawals eg £500 or so until the tax code is sorted, provided it's sorted in time for the March payment you'll pay no tax if the total withdrawal is within the PA.
HMRC's process is designed to work in this way, see Main Review section here.
https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye13005
As it ended several years ago the old employment will be ignored once a new source of PAYE starts and a new code will will be calculated without any reference to this old job/pension.
And as this is a normal drawdown situation the new pension payer should operate the emergency code, 1257L, on the first payment (on a non cumulative basis).1 -
OK thanks, didn't know they did that, bit odd that there's an estimated income from a job which finished years ago.Dazed_and_C0nfused said:
With the greatest of respect there is absolutely no need to try and do that.zagfles said:I was a bit confused when you mentioned your current tax code, tax codes are applied per employment/pension, so if you don't have a current employment/pension in payment then you shouldn't even have a tax code. It appears the tax code you're talking about is from an old employer? And they're estimating an income of £8656 from this employment even though it ended years ago?
If you start drawing a pension it'll have a completely separate tax code, if an income is still assumed from employment then the tax code on the pension would be much reduced as they think most of the PA will be used by the employment income.
So I think the first step is to get the old employment removed from the system, you can do this now. Then when the pension starts getting paid, it would probably initially be on the emergency tax code but HMRC will probably update it to PA minus untaxed interest. You can then give them an estimated income from the pension of £12570. This should update the tax code to 1257L.
Then if you draw £12570 over Dec-Mar you should pay no tax overall, although you may pay some initially and get it refunded. For instance if you drew £3143 for 4 months you may pay some tax in Dec and possibly Jan if the tax code isn't sorted by then, but you'd get it all back in Feb, automatically via the PAYE system, you don't need to claim.
If you really want to avoid paying tax even temporarily, then you could make lower withdrawals eg £500 or so until the tax code is sorted, provided it's sorted in time for the March payment you'll pay no tax if the total withdrawal is within the PA.
HMRC's process is designed to work in this way, see Main Review section here.
https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye13005
As it ended several years ago the old employment will be ignored once a new source of PAYE starts and a new code will will be calculated without any reference to this old job/pension.
And as this is a normal drawdown situation the new pension payer should operate the emergency code, 1257L, on the first payment (on a non cumulative basis).0 -
My SIL still has a code allocated against her last job which finished in 2020.The main pointer for OP is under no circumstances do 4. Around £4k tax would be deducted and it would take a while to get it back.1
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I did notify them that that employment ceased in July 2019!!
How's it going, AKA, Nutwatch? - 12 month spends to date = 3.24% of current retirement "pot" (as at end December 2025)0 -
I was just after the best way to draw it during that mid tax year, so tax didn't get deducted and then need reclaiming.
How's it going, AKA, Nutwatch? - 12 month spends to date = 3.24% of current retirement "pot" (as at end December 2025)0
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