Interactive Investor first Drawdown withdrawal

Pat38493

I requested a one time drawdown from II of £1100 so that I could get a tax code applied.

I have not received any money yet but the gross amount had been deducted from my cash.  I noticed that they have now updated a tax code "1257L" and tax basis "Month 1".  It says on their website this code "was received from HMRC".  This income stream does not yet appear on my gov.uk portal.

I think this means that I will pay only £10.50 in tax?  This is incorrect because actually this should be taxed at BR but I guess HMRC will update it again when they get the actual amount through?

Based on the information HMRC already has about the current tax year, it's impossible for this tax code to be correct, but I guess they only review it once an amount is received later?

dunstonh

I have not received any money yet but the gross amount had been deducted from my cash.  I noticed that they have now updated a tax code "1257L" and tax basis "Month 1".  It says on their website this code "was received from HMRC".  This income stream does not yet appear on my gov.uk portal.

1257LM1 is the default they should use for the first payment.   HMRC will tell them what to use in the coming weeks for future payments.

Based on the information HMRC already has about the current tax year, it's impossible for this tax code to be correct, but I guess they only review it once an amount is received later?

Its correct that they are using it for this payment but it sounds like it is incorrect for your circumstances.   So, a second withdrawal after 6th March should tidy it up.

Pat38493

dunstonh said:

I have not received any money yet but the gross amount had been deducted from my cash.  I noticed that they have now updated a tax code "1257L" and tax basis "Month 1".  It says on their website this code "was received from HMRC".  This income stream does not yet appear on my gov.uk portal.

1257LM1 is the default they should use for the first payment.   HMRC will tell them what to use in the coming weeks for future payments.

Based on the information HMRC already has about the current tax year, it's impossible for this tax code to be correct, but I guess they only review it once an amount is received later?

Its correct that they are using it for this payment but it sounds like it is incorrect for your circumstances.   So, a second withdrawal after 6th March should tidy it up.

Thanks - well they have now given me a tax code BR W1M1.

I think BR tax code is always non cumulative (?) so the underpaid tax in January won't be recovered and will end up in next year tax code, even if I make a further withdrawal?  However I don't think there's a way to fix it without messing up my DB pension tax code for next year.  The tax codes I have at the moment are correct for next year as well in my opinion.

molerat

BR is cumulative unless suffixed with W1/M1/X.  They don't want to cause you a problem recovering that £210 underpaid tax in one go so are just stopping you getting deeper in debt to them by using the X suffix.  If you give them a call and tell them you are happy for them to recover the tax quickly they will likely remove the X. Or you just look at it as an interest free loan to be paid back at £35 pm from around October.

Pat38493

molerat said:

BR is cumulative unless suffixed with W1/M1/X.  They don't want to cause you a problem recovering that £210 underpaid tax in one go so are just stopping you getting deeper in debt to them by using the X suffix.  If you give them a call and tell them you are happy for them to recover the tax quickly they will likely remove the X. Or you just look at it as an interest free loan to be paid back at £35 pm from around October.

Thanks that helps - but if it's was cumulative, does that mean it would tax amounts more than £37700 at 40%?

On the other hand, so long as my tax code is BR W1M1 this could be very helpful for flexible drawdowns?  I have a DB pension that is slighly larger than the personal allowance.  As such, does this tax code mean that I can take money out of the DC pension up to the 20% tax limit and I will always only pay 20% tax, even if I took e.g. 36K all at once?

molerat

BR will tax everything at 20%.  With an X suffix it will not look back at previous withdrawals and simply take 20% off each individually, without the X it would take 20% off everything to date less what has already been paid.

So with the X take £1K now and it would deduct £200, without the X take £1K now it would deduct (£1100 + £1000) = £2100 x 20% = £420 - £10.50 = £409.50.

Pat38493

molerat said:

BR will tax everything at 20%.  With an X suffix it will not look back at previous withdrawals and simply take 20% off each individually, without the X it would take 20% off everything to date less what has already been paid.

So with the X take £1K now and it would deduct £200, without the X take £1K now it would deduct (£1100 + £1000) = £2100 x 20% = £420 - £10.50 = £409.50.

OK - but if that tax code remains in place in the 26/27 tax year....

Let's say in April 2026 I make a withdrawal of 36K, it would just deduct £7200?

And even if I made a huge withdrawal of £100K, it would deduct £20K and I would then have to contact HMRC to arrange to pay the extra tax?

molerat

OK - but if that tax code remains in place in the 26/27 tax year....

It won't.  A new appropriate code will be issued for 26/27- which may or may not be BR, but yes, if you took a large withdrawal on a BR code HMRC would re-assess your position likely changing the code with immediate effect to recoup tax on future in year withdrawals and then square up in future years.  

Pat38493

molerat said:

OK - but if that tax code remains in place in the 26/27 tax year....

It won't.  A new appropriate code will be issued for 26/27- which may or may not be BR, but yes, if you took a large withdrawal on a BR code HMRC would re-assess your position likely changing the code with immediate effect to recoup tax on future in year withdrawals and then square up in future years.  

OK - but actually in my opinion BR non cumulative is a good code for me to have in my situation as my plan is to withdraw up the the overall 20% tax limit.  With the tax code they have currently assigned, and given that my DB pension is slightly higher than the personal allowance, I could withdraw my DC in uneven chunks during the year and I would always pay the correct tax amount unless I change my plan and decide to go into the 40% tax band.

To clarify, my DB pension is £13849.
Estimated savings interest less than £1K.
Planned withdrawal from DC during 26/27 £35K.

If I am understanding correctly, with the currently assigned tax codes I can take out that £35K any way I like - monthly, all in one go, quarterly, or whatever and I'll always end up paying the correct tax.

molerat

BR or BRX will have much the same effect next FY deducting 20% from everything but it is unlikely the X will be kept  Keeping BRX this year and making further withdrawals leaves you owing that £210 at the end of year.

Dazed_and_C0nfused

Pat38493 said:

I requested a one time drawdown from II of £1100 so that I could get a tax code applied.

I have not received any money yet but the gross amount had been deducted from my cash.  I noticed that they have now updated a tax code "1257L" and tax basis "Month 1".  It says on their website this code "was received from HMRC".  This income stream does not yet appear on my gov.uk portal.

I think this means that I will pay only £10.50 in tax?  This is incorrect because actually this should be taxed at BR but I guess HMRC will update it again when they get the actual amount through?

Based on the information HMRC already has about the current tax year, it's impossible for this tax code to be correct, but I guess they only review it once an amount is received later?

Did you consider taking a smaller payment for your first one?

That is the normal way to go if you know basic rate tax is going to be payable.

With one or two exceptions the first payment would always have the emergency code (1257L) operated so you end up owing tax.

If you have another pension in payment you can expect a reduced tax code, either for the rest of current tax year or possibly from April 2026, to collect the ~£210 you likely now owe.