Paying income tax when taking money out of drawdown pension

XzavierWalnut

I am retired and living off small pensions and savings, and a non tax payer, due to my income being below my tax code. Not eligible for state pension until 2030.
I have taken my 25% tax free sums out of my pensions in previous years.
I decided to take some money out of my drawdown pension, whilst keeping my total income below my tax code.
As I do a self assessment each year, I thought I would declare this drawdown money next April.
Just received a confirmation letter from the pension company, and they have stated they will either use an emergency tax code, or if they received a tax code previously they would use that.
I realise I will get any tax back when I do my next self assessment.
Is there a way to avoid paying any tax upfront?

molerat

No, they are bound by the rules which states 1257LX must be used unless another code is in place.  But you could have split the drawdown taking less than £1048 first so no tax would be deducted and triggering HMRC to issue a code to be used on further draws which would most likely require a final dip in March to square the tax for the year.  HMRC will issue a code so there is a chance you could still take another small dip in March which would refund any overpaid amount.

Isthisforreal99

XzavierWalnut said:

I am retired and living off small pensions and savings, and a non tax payer, due to my income being below my tax code. Not eligible for state pension until 2030.
I have taken my 25% tax free sums out of my pensions in previous years.
I decided to take some money out of my drawdown pension, whilst keeping my total income below my tax code.
As I do a self assessment each year, I thought I would declare this drawdown money next April.
Just received a confirmation letter from the pension company, and they have stated they will either use an emergency tax code, or if they received a tax code previously they would use that.
I realise I will get any tax back when I do my next self assessment.
Is there a way to avoid paying any tax upfront?

Request £1,047 or less as your initial withdrawal - that is the monthly equivalent of the emergency tax code.

XzavierWalnut

Thank you both for the replies, very useful information.

Keep_pedalling

Why are you having to do self assessments? 

XzavierWalnut

Keep_pedalling said:

Why are you having to do self assessments? 

Ebay sales.

Dazed_and_C0nfused

XzavierWalnut said:

Keep_pedalling said:

Why are you having to do self assessments? 

Ebay sales.

That in itself isn't a reason to need too file a tax return.

Do you mean you are self employed and your business involved selling things via eBay?

If so that may increase the amount you can add to a pension, and get basic rate tax relief added despite paying no tax.

NorthYorkie

You have said that the amount you are going to draw down will still keep your total taxable income below your 'tax code', so you mean below £12,570. In that case the amount you will be drawing should not attract any tax on Code 1257 (Emergency code). So I don't see any problem. 

Notepad_Phil

NorthYorkie said:

You have said that the amount you are going to draw down will still keep your total taxable income below your 'tax code', so you mean below £12,570. In that case the amount you will be drawing should not attract any tax on Code 1257 (Emergency code). So I don't see any problem. 

Whether the first and subsequent payments have any tax deducted (or repaid) will depend on how much they take out in that first and subsequent payments, what the tax code is when the payments are taken and when the payment is taken, not just on how much they will take out over the tax-year - though a subsequent March 6th to April 5th payment should always see the correct amount of tax being repaid if the person doing the drawdown has done their calculations correctly of how much they can drawdown over the tax-year.

Albermarle

NorthYorkie said:

You have said that the amount you are going to draw down will still keep your total taxable income below your 'tax code', so you mean below £12,570. In that case the amount you will be drawing should not attract any tax on Code 1257 (Emergency code). So I don't see any problem. 

The issue is if you say draw the £12570 K in May. The tax system has no idea how much more you might withdraw in the tax year, so assumes you will be taking £12570 every month and taxes you accordingly.
So you will pay tax but you can claim it back.
As already said the main way to avoid this , is to take an £12570 /12 amount each month.

XzavierWalnut

Dazed_and_C0nfused said:

XzavierWalnut said:

Keep_pedalling said:

Why are you having to do self assessments? 

Ebay sales.

That in itself isn't a reason to need too file a tax return.

Do you mean you are self employed and your business involved selling things via eBay?

If so that may increase the amount you can add to a pension, and get basic rate tax relief added despite paying no tax.

I have sold over £1k on ebay in the past and that is how I ended up having to do an self assessment. It is not a business officially, really a hobby.