Withdrawing lump sum in same year as gaining tax relief

davefrombristol

Are there any rules with regards withdrawing a lump sum from a pension ( moneybox ) in the same financial year that you have claimed tax relief. I am debating the pros and cons of depositing 10 to £20,000 to gain the tax relief for this financial year 2026-2027 but may well need to withdraw a similar amount before the next tax year starts. This will be my last year working and I will be 67 yrs old next year. I don’t have a sizeable pension pot and am looking to take advantage of the 25% tax relief.

chuffinnora

Check your situation against the pension recycling rules. These effectively cover a 5 year period. Based on what you are saying it seems likely you will breach them, although never heard of anyone doing that.

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133810#IDA1HQQB

Albermarle

https://forums.moneysavingexpert.com/discussion/6688055/withdrawing-lump-sum-in-same-year-as-gaining-tax-relief

There are no specific rules not allowing you to do that.

 I don’t have a sizeable pension pot and am looking to take advantage of the 25% tax relief.

It can be argued that if you do not have a sizeable pension pot to last you the next 30 years or so, then probably not a good idea to take 25% of it out straightaway. Although as always it all depends on your overall personal circumstances.

davefrombristol

I want to withdraw a reasonable chunk of pension pot (75%/25%) in this financial year as next financial year 2027-2028 I will have no income apart from state pension and will rely on the starting rate for savers and use some or all of the £5000 +£1000 allowance.

I want to avoid withdrawing from my pension pot next financial year as this will be treated as income ? I assume it does, and will wipe out all of the starting rate for savings that I'm able to gain, putting me on an income above £18570 or after the state pension rise next april £19000.

molerat

Do you have sufficient earned income to be eligible to put £25K gross into a pension ? It will be treated as taxable income in whichever tax year you take it out so why would taking it out this year be more beneficial than next ?

davefrombristol

I have a moneybox pension on top of a work based nest pension. The Moneybox pension has around 12,000 from last year 2025-2026 top up contributions from myself to get the tax relief for last year. This year 2026-2027 I have earnt around 15,000 gross and my work based pension is pants 5% me 3% employer so the tax relief so far this year is only around £450 so far.

This will be my final year working as my job is too physically and mentally challenging and I will be 67 next year. I intend to maximise savings interest and with the full state pension simply live on about 20,000,

I have to decide whether to add money to my moneybox pension to get the tax relief for 2026-2027 but If I do so am I able to take a similar sizeable withdrawal before the start of the next financial year so I can free up 2027-2028 as a year with no income and only the state pension and able to use the maximum starting saving allowance £5000 and £1000 interest allowance on top of my state pension to live off and not pay the 22% tax on that interest from next April 2027

I hope this makes it clearer what my intentions are and whether there are any issues over claiming this years tax relief and then making say a 20,000 withdrawal next march to pay tax at 20% on that withdrawal ( 75%taxable) in this financial year avoiding doing so in the next financial year

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/82180892#Comment_82180892

From what you've posted you will be limited to what you can contribute.

What do you expect your P60 to show your taxable earnings as for the year to 5 April 2027? Or your P45 if you will be leaving the job before the end of the tax year?

Have you made any contributions to the Moneybox so far in the current tax year?

How much will the gross contribution you have made to Nest be by the end of the tax year? Your net contribution and the basic rate tax relief Nest will add. Ignore the employers contribution.

davefrombristol

My P60 from my employer will show this. Income from employer will be in the region of around £28,000. Currently HMRC have hammered me for an income of 12,547 the whole years state pension even though I have literally only just started getting the state pension at the start of October 2026. Also HMRC have estimated an income of £8,200 from savings interest. This has all resulted in me getting a PAYE tax code of K12,200 yes minus 12,000. Already this year alone I have paid over £3000 income tax on £15,000 money earnt.

I have made no contributions whatsoever to moneybox in this financial year 2026-2027

My nest work pension averages at around £80 a month from me and about £20 tax relief per month. so I have contributed around £480 in the six months this year and claimed only around £120 in tax relief in this financial year.

As you can see this financial year is a complete mess with HMRC wildly and incorrectly estimating incorrect income amounts. I am happy to pay any tax on withdrawals I make in this financial year. I want to keep next financial year free from any income from paid work and free from all the HMRC errors and rediculous minus PAYE tax codes, and simply live of income from savings and state pension

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/82180941#Comment_82180941

You have completely misunderstood how State Pension is dealt with in the first tax year you receive it.

If you are already paying tax then your code needs to include a full year deduction for the State Pension. That's because the new code is operated on a non cumulative basis, not applied retrospectively.

Given your earnings are expected to be nearly £30k you don't have an issue with being eligible to contribute the amount you have suggested in this tax year.

davefrombristol

This is a google AI search on partial state pension and how HMRC treat you:

To prevent you from overpaying tax in your first year (since you are only getting a partial year's pension), HMRC will usually instruct your employer or pension provider to use a "Week 1" or "Month 1" temporary tax code. This isolates your earnings month-by-month and prevents the system from assuming you received the pension for the whole year.

Unfortunately for me they have not done the above and have added an income of £12,547 as if I started getting the pension last April 5th ( I wish! ) but in reality I reached state pension age Oct 2026

If I have misunderstood how HMRC treat a partial claim for state pension during a tax year fair enough, but as I am not getting an income of £12,570 from the state pension this financial year, it seems a bit rich of HMRC to use this figure as it is clearly incorrect.

This is one of the reasons I want to call it a day working so that the next financial year only has me with a state pension income where I can free myself from minus £12,000 tax codes

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/82180960#Comment_82180960

You have missed the key bit of that explanation. It is clearly correct.

This isolates your earnings month-by-month and prevents the system from assuming you received the pension for the whole year.

Using rounded figures for simplicity, if your tax code includes State Pension of £12,000 and that tax code was used for the final six months of the year how much State pension have you been taxed on. £6,000.