Taxed on my already taxed savings

TricityMan

Middle manager, putting an extra £50 per week on top of my pension for the last 3 years, taken from whatever wages I had left after Tax and NI. So long story short, loose my job due to ill health, reach 55 years of age (I'm now 58 tomorrow) and decide to take my pension lump sum to take family on holiday to the states. HMRC takes 25% tax of my already taxed savings before I can say Boo… What is the point, really??

Baldytyke88

If you put money into a pension, then you claim pension tax relief, so effectively you haven't been taxed on it.

bjorn_toby_wilde

You’ll have to give a bit more information if you want an answer… assuming you want one and aren’t just venting.

If you took the tax free lump sum it should have been exactly that. Tax free.

If you took a UFPLS then, depending on how much, it could well have been taxed on an emergency code, in which case you can claim the tax back.

There are so many possibilities here.

How much did you take and how did you access it?

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/6664910/taxed-on-my-already-taxed-savings

Not even Scotland has a 25% tax rate so whatever has been deducted is likely to be a mix of other taxable rates, say some at 0%, 20% and 40%.

The actual tax ultimately payable will depend on your other income in the tax year you took (taxable) money out of your pension.

You might have extra to pay yet. You might be due a refund. Impossible to say from the information you have given.

Vitor

OP seems to be mixing up “paid from taxed pay” with “taxed twice”, and they are not the same thing.

If the £50 a week went into a pension, you normally got tax relief on the way in, even if it felt like it came from your remaining wages. So it was not just ordinary savings that HMRC then decided to tax again for fun.

On the way out, 25% is usually tax free and the rest is taxed as income. If too much was deducted, that is often because the provider used an emergency tax code on the withdrawal, not because HMRC has taken a flat 25% of your pot.

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/6664910/taxed-on-my-already-taxed-savings

You paid £50 of taxed income into your SIPP.

When you made those pension contributions, the £50 will have been grossed up to £62.50 actually credited to the pension fund. If you were a higher rate tax payer, you might also have claimed tax relief of the higher rate tax band (widens your basic rate tax band).

On withdrawal, subject to certain limits, 25% of the £62.50 can be taken without incurring income tax. Beyond that will be subject to income tax at your marginal rate.

If you have suffered an effective income tax rate of 25% that would suggest that you straddle the higher rate threshold, so for £100 withdrawn, the tax would be as follows:

£25 with no tax

£25 at basic (20%) tax rate, resulting in tax of £5

£50 at higher (40%) tax rate, resulting in tax of £20

Total tax £25

The above assumes England - other tax rates and threshold are available.

If the tax has been deducted by the pension fund then what tax code has the pension fund used? It may be an emergency tax code.

Also, consider that if the payment was drawn this tax year (since 6th April), it may be a tax calculation based on a one-off withdrawal that has assumed the same amount every month and, hence, the tax in the calculation is higher than it will be as the year progresses as lower income will result in the over-estimation of annual income resolving.

What other income do you receive?

QrizB

putting an extra £50 per week on top of my pension for the last 3 years, taken from whatever wages I had left after Tax and NI.

If this was a relief-at-source pension (and while that seems likely you haven't said) your £50 x 52 x 3 = £7800 will have received £1950 of tax relief on the way in. So a total of £9750.

.. decide to take my pension lump sum to take family on holiday to the states.

I'm going to assume you mean "take my entire additional pension as a lump sum" although that isn't exactly what you've said.

Ignoring any investment growth, when you take your £9750 you should get 25% of it tax-free. that's £2437.50.

Assuming (another assumption) that you've not taken anything from this pension previously, the remaining £7312.50 will be taxed at the emergency rate. Effectively you're taxed as though you were taking that much every month, so ~£88k a year.

HMRC takes 25% tax of my already taxed savings before I can say Boo

This calculator suggests that you'll be taxed £1,877.67. That's 19% of your total.

As has been posted by others, whether this is the amount of tax that's actually due, or whether you'll get a refund at the end of the tax year (or even owe more) will depend on your taxable income for the whole of the 2026/27 tax year.

dunstonh

https://forums.moneysavingexpert.com/discussion/6664910/taxed-on-my-already-taxed-savings

As mentioned, there is no 25% tax band. So, it's likely that you have been taxed at the emergency tax rate. That is easily sorted if it's the case and not worth venting over.

You are also forgetting that you had tax relief on the way in: no capital gains tax, or dividend tax, or tax on interest in the pension whilst it was growing. You also get 25% tax-free cash on withdrawal. And the remainder is able to use your personal allowance and is only taxed on the amount above the personal allowance, assuming you have no other income.

Marcon

Middle manager, putting an extra £50 per week on top of my pension for the last 3 years, taken from whatever wages I had left after Tax and NI. So long story short, loose my job due to ill health, reach 55 years of age (I'm now 58 tomorrow) and decide to take my pension lump sum to take family on holiday to the states. HMRC takes 25% tax of my already taxed savings before I can say Boo… What is the point, really??

Given the amount of information available in the public domain, one can indeed only wonder what the point is of making so much effort to try and ensure scheme members understand the tax advantages of saving into a pension.

daveyjp

"What is the point? "

Of this post? Who knows.

It is probably better in the "Praise, Vents and Warnings" forum as it offers very little for any meaningful advice to be given.

It does however demonstrate why having even a very basic understanding of UK pensions and taxation treatment can be worthwhile.

sheramber

https://forums.moneysavingexpert.com/discussion/6664910/taxed-on-my-already-taxed-savings

When you paid that taxed income into your pension the pension company added the tax amount to your payment and put it into your pension fund.

Hulu got credit for the tax and it grew in line with the investments in your pension fund.

No double taxing happened.