Workplace Pension

HoolyNI

Hello all, due to arthritis I am unlikely to work again between now and collecting my pension in 6 years' time. Is there any way I can cash in a couple of small pensions and avoid paying tax on the 75%?

I will have no other taxable income, and my thinking is that if I cash them in over the next three tax years but make sure to keep each sum under my personal allowance, then no tax should be payable? The problem is the pension companies' default seems to be to tax the 75% at 20% and then let me chase HMRC for a refund. Is there a form or declaration I can sign to avoid this?

MallyGirl

There will always be some tax on the first drawdown as far as I can see. If you keep it small then a tax code gets issued and the remaining draws within the tax year can be more accurately taxed. You can't just say 'I won't be liable for tax so please don't deduct it'

HoolyNI

I wasn't planning on "just saying it" that's why I wanted to know whether there was a form or declaration I could sign, but thanks for your input anyway.

dasherman

In my case there was a gap of about 5 months between leaving work and beginning to drawdown my personal pension, at a rate to be able to keep within the personal allowance.

I was expecting to be taxed on at least the first monthly payment, but wasn't and haven't been in the 2 years I've been doing it.

I'm not sure whether the 5 month gap was a factor or not, but I was pleased I didn't have to chase HMRC.

HoolyNI

dasherman said:

In my case there was a gap of about 5 months between leaving work and beginning to drawdown my personal pension, at a rate to be able to keep within the personal allowance.

I was expecting to be taxed on at least the first monthly payment, but wasn't and haven't been in the 2 years I've been doing it.

I'm not sure whether the 5 month gap was a factor or not, but I was pleased I didn't have to chase HMRC.

I changed jobs a few times since the workplace pension started, so I have been left with three small lump sums and an old SERPs-related pension. I cashed the smallest one in last March to test the water and was taxed appropriately, but there has been no mention yet from HMRC regarding any refund despite having no other income for the last tax year. Just trying to avoid having to chase them for larger sums.

dasherman

HoolyNI said:

dasherman said:

In my case there was a gap of about 5 months between leaving work and beginning to drawdown my personal pension, at a rate to be able to keep within the personal allowance.

I was expecting to be taxed on at least the first monthly payment, but wasn't and haven't been in the 2 years I've been doing it.

I'm not sure whether the 5 month gap was a factor or not, but I was pleased I didn't have to chase HMRC.

I changed jobs a few times since the workplace pension started, so I have been left with three small lump sums and an old SERPs-related pension. I cashed the smallest one in last March to test the water and was taxed appropriately, but there has been no mention yet from HMRC regarding any refund despite having no other income for the last tax year. Just trying to avoid having to chase them for larger sums.

I left work in the June and was due a tax refund from those 2 months of the tax year before I left.

I decided to let it run it's course rather than chase it up, and it was about 12 months before it came through.

I assume it it would have been quicker if I'd applied for it?

dunstonh

The problem is the pension companies' default seems to be to tax the 75% at 20% and then let me chase HMRC for a refund. Is there a form or declaration I can sign to avoid this?

HMRC set the rules for PAYE.    The 75% is released under payroll.  So, it will follow PAYE rules.    Drawing the 75% monthly would be the easiest.     Month one would be emergency tax (to use the old name) but by month two, HMRC would have told them what tax code to use and it will correct itself by March.

If you have a P45 from former employment in this tax year, then a copy of that should go to the pension company so they can use it.

 I cashed the smallest one in last March to test the water and was taxed appropriately, but there has been no mention yet from HMRC regarding any refund despite having no other income for the last tax year. 

If you do nothing, then it can take upto 2 years to get the refund.   Or you fill out the form online or paper and it takes about 3 months.  However, you can only complete the tax reclaim form in the same tax year the pension was paid.

molerat

In answer to your question, no, there is not a form to fill in to avoid paying tax.  If you understand how the PAYE system works then you can use that to your advantage and phase withdrawals to pay no tax.

Albermarle

HoolyNI said:

dasherman said:

In my case there was a gap of about 5 months between leaving work and beginning to drawdown my personal pension, at a rate to be able to keep within the personal allowance.

I was expecting to be taxed on at least the first monthly payment, but wasn't and haven't been in the 2 years I've been doing it.

I'm not sure whether the 5 month gap was a factor or not, but I was pleased I didn't have to chase HMRC.

I changed jobs a few times since the workplace pension started, so I have been left with three small lump sums and an old SERPs-related pension. I cashed the smallest one in last March to test the water and was taxed appropriately, but there has been no mention yet from HMRC regarding any refund despite having no other income for the last tax year. Just trying to avoid having to chase them for larger sums.

HMRC will do an automatic calculation of your tax position for 24/25, and if the tax is not right you will be issued with a P800, which is details of the calculation, and any tax owed, or to be refunded.
These should all be done my now but they are running late.
Have you registered for your online personal tax account, as that makes it easier to see what is happening?

HoolyNI

My plan had been to take less than my personal allowance out over the next three tax years but as I have no other taxable income I had hoped to avoid paying the tax in the first place. Thanks all for your advice I will wait and see if any refund appears, I know my wife had an unrelated refund paid back to her around July or so.

xylophone

Perhaps you could transfer all three old pensions into one modern plan - you might then take the full tax free PCLS and use that as income for as long as it lasts?

You might then take monthly income as appropriate?

https://www.gov.uk/personal-tax-account