Tax code for SIPP withdrawal

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81968824#Comment_81968824

Neither.

You are correct about the taxable amount that wont have any tax deducted but the remainder will have a mix of 20%, 40% and 45% tax deducted.

If you take a further payment in the next tax month, even just £1 (or whatever small amount is needed for the pension company to process a second payment) you will get a refund of some of the tax as part of the second payment. As you are going from taking the equivalent of £225k to just ~£112k

aroominyork

Do you mean "equivalent of £250k...", D&C? Also, if I don't plan to make further withdrawals can I use a P55 to get back all the excess tax straight away?

What is 'cumulative' in this coding process? It doesn't tax my withdrawals as they accumulate, but taxes them on the basis that I will withdraw the same each month?

molerat

Tax on £18750 in M1 will be £6815.70 - £1048.26 tax free, the next £3142 at 20%, the next £7287 at 40% and the remaining £7272 at 45%. PAYE tax due on £18750 in the year is £1234.

Cumulative simply means it taxes you as the year goes on taking all prior income into account using 1/12th of the allowance each month on cumulative basis and taking a £1 taxable withdrawal in M12 would result in an actual payment of £5582.50

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81968846#Comment_81968846

Nope, £18,750 x 12 is £225k.

You can make a claim yes. Not sure exactly which form it is as there are a few very similar ones.

Your tax code will almost certainly be used on a cumulative basis at the moment, your issue is taking the first payment as what is the equivalent of a £225k pension.

It would be just the same if you earned £18,750 in April with the same emergency tax code in place (1257L).

aroominyork

This seems to be the form https://www.gov.uk/guidance/claim-back-tax-on-a-flexibly-accessed-pension-overpayment-p55.

Does anyone have experience of using it, and would it refund the difference between the tax paid and, if molerat's calc is correct, £1234?

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81968867#Comment_81968867

It wouldn't be £1,234 if you were claiming a refund though.

£18,750 less £12,570 leaves £6,180 to be taxed. Basic rate tax on £6,180 is £1,236.

aroominyork

This thread is about OH's SIPP and I have just noticed that although Interactive Investor shows 1257L cumulative, Gateway shows BR. BR is correct since her £12570 allowance is taken up by state pension and part of her NHS pension. So presumably I need to get ii to correct the code and she will then have a straight 20% of crystallised withdrawals taken as tax.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81969202#Comment_81969202

That sounds quite unusual. Presumably this isn't her first taxable payment (ever) form this SIPP. Or is it?

aroominyork

She took her first withdrawal last month of £28,175 gross and received £20,288. She afterwards phoned HMRC and asked them to update her tax code, but what Gateway shows is different from what ii shows:

So do we ask HMRC to update ii? Also, what part of this is unusual?

Dazed_and_C0nfused

If HMRC have sent ii a BR code then I'm not sure why they wouldn't show that?

Where does she see the BR code on her tax account?

Maybe it will only be updated (by ii) when they first use the code?

Might be worth contacting ii to ask what tax code will be used on the next payment.