SIPP drawdown sense check and how do I sort out tax owed?

MoosMum

https://forums.moneysavingexpert.com/discussion/comment/81905343#Comment_81905343

My main pension 26/27 will be in excess of £40k thanks

molerat

It is going to get messy trying to get the correct tax deducted as you are going into 40%. There is also taxable savings interest to take into account - how much are you expecting next year as you are going to be reduced to £500 tax free. Might be a case of updating the incomes and interest to the correct amounts and see what happens. Ideally it would be BR on the SIPP, which means you could take whatever you wanted - within that decided amount - whenever, and have the full allowance on the main pension with a rate band adjustment deduction to collect the 40%. Might have to talk to HMRC for that to be applied and you would need to watch your codes around October time as they have a habit of doing some strange things - I have to play a game with them every year !

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81905400#Comment_81905400

Are you quite sure 500T is the code for your SiPP for this forthcoming year then?

It often adds complexity to have a split tax code like that if you have such a large pension as your main source of PAYE income.

MoosMum

https://forums.moneysavingexpert.com/discussion/comment/81905622#Comment_81905622

They still have the 500t on the system as this relates to the amount I took out last year. Sorry to be naive but I don't really understand about the implications of a split tax code. All I wish to do is take funds from the SIPP and pay HMRC.

MoosMum

https://forums.moneysavingexpert.com/discussion/comment/81905523#Comment_81905523

Thanks for your suggestion I look forward to the long wait on the call !

Linton

https://forums.moneysavingexpert.com/discussion/comment/81905747#Comment_81905747

When you withdraw taxable money from a SIPP it is processed by the provider under PAYE in exactly the same was as if you were an employee except for the absence of NI. DB pensions and annuities are also taxed under PAYE.

Each of your PAYE income streams will have their own tax code. Generally the total of your tax codes plus SP ahould result in the same tax paid as with a 1257L tax code on a single income of the same size. This is the exactly the same as if you had multiple employers. SP tax is covered by HMRC reducing the total tax code. Neither you nor HMRC are involved in the on-going process, it all happens automatically.

This works out fine with no effort on your part if you have a steady income over the year. However if you take a significant single lump sum in a tax year from your SIPP you are likely to be charged excessive tax because of the way PAYE works. This is exactly the same as if you were to receive a large bonus on your wages. You can get any excess repaid in various ways or avoided completely but I wont go into that here.