Tax treatment on starting drawdown from SIPP

spg1

I appreciate this question will have been asked here many times before, but I wanted to find out how the tax will be handled when I start drawdown from my SIPP (held with ii) in April.

I’m self-employed and still earning but only around £15k a year and I plan to take £12,570 a year (the tax-free allowance) from my SIPP - the full TFLS has already been taken.

Will the money from my pension be paid gross and then I just add it into my annual tax return? Do I need to inform ii that I have other income?

Thanks in advance.

DRS1

It won't be paid gross. PAYE will apply. How much tax is actually deducted will depend on how you take the pension - if all in one go in April then more will be deducted than if you spread it out as £1k per month over the year.

And if you have £15k of self employed profits then won't that have used up your personal allowance?

Marcon

https://forums.moneysavingexpert.com/discussion/6659343/tax-treatment-on-starting-drawdown-from-sipp

Same way it'll be handled for everyone else who has asked the same question! Your SIPP provider will be sent a tax code by HMRC and they will apply that to your withdrawals, which will be taxed on a PAYE basis. You don't need to tell ii about other income - they have to act in accordance with the code sent to them by HMRC (or use an emergency code pending receipt).

You can follow what's going on in your personal tax account https://www.gov.uk/personal-tax-account

spg1

https://forums.moneysavingexpert.com/discussion/comment/81920394#Comment_81920394

Thanks - I plan to take it equally split over 12 months. Yes, appreciate my earnings would already use up my personal allowance - just thought for neatness I would take the personal allowance figure from my SIPP.

Sam_666

Very tax ineficient way to take out pension, while working.
Better would be to take it out when you dont work or income falls below 12k.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/81920404#Comment_81920404

OK If you do that then you may find no tax is deducted from the first payment because the emergency code is usually 1257L. No idea what your proper code will be - if you do self assessment for the self employed earnings and have no other taxable income like savings interest then it might actually be 1257L as well. In that case you would pay the tax via the self assessment process.

spg1

https://forums.moneysavingexpert.com/discussion/comment/81920411#Comment_81920411

Yes, appreciate would be better to start taking pension when I've stopped working or income drops. However my current income isn't enough to support my spending - I don't want to work more but happy earning at roughly that level for quite a few years as I enjoy it.

Albermarle

Normally in this situation, your employment income would have a tax code of £12570 and the pension a BR code, which means all income is taxed at basic rate. It may well take a couple of months for it to settle down, as for the first payment, II will have no tax code for you

I suppose you could ask for it to be the other way round, but it would not bring any advantage.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81920526#Comment_81920526

But I don't think the op has any employment income. So the code is more than likely going to continue to be 1257L, at least in the short to medium term.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81920616#Comment_81920616

OP is self employed and said this '

Yes, appreciate my earnings would already use up my personal allowance

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81921534#Comment_81921534

But self employment hasn't ever (or not in recent years anyway) been an element in tax codes, so a 1257L code is likely to be used and the overall liability sorted via the tax return in due course.