Drawdown whilst still working and tax implications

gonedownthepub · 17 October 2018 at 7:38PM

Hi
I am currently working full time with salary circa £34k but wish to reduce my hours next year when I am 56 years old.
I have already taken my 25% tax free lump sum from my SIPP to invest in other property to help my daughter get on ladder.
On reducing my hours I shall be about £350 /month worse off ,I intend to make up the shortfall by drawdown of that amount each month.
I am interested in the tax implications as I believe HMRC will give me an emergency tax code.
So who gets this new tax code ,the pension provider or my employer?
Will there be any advantage in just taking £1 in the first month so HMRC assume this will be my monthly drawdown and issue tax code on that amount?
Thanks

AlanP_2 · 17 October 2018 at 7:59PM

Not at that stage so can't comment on tax code but remember if you take any taxable income from a SIPP / DC pot you are limited to £4k a year pension contributions.

Linton · 17 October 2018 at 8:02PM

Your first ever taxable drawdown will be taxed by the platform using a general emergency tax code specified by HMRC. HMRC will then issue a new taxcode to the platform to be used for subsequent drawdowns - each source of income has its own taxcode. This should result in you paying the correct tax by the end of the tax year.

Once the taxcode has been issued you will have the opportunity to move your tax allowance allocation between your two sources of income should you wish. Overall it wont make any difference to the tax you pay.

gonedownthepub · 17 October 2018 at 8:07PM

AlanP wrote: »

Not at that stage so can't comment on tax code but remember if you take any taxable income from a SIPP / DC pot you are limited to £4k a year pension contributions.

Thanks my wife does not have a sipp yet and I assume I can open another sipp which allows full contributions?

dmelife · 17 October 2018 at 8:16PM

No you can’t, the £4K limit will apply to any pension

Linton · 17 October 2018 at 8:17PM

gonedownthepub wrote: »

Thanks my wife does not have a sipp yet and I assume I can open another sipp which allows full contributions?

The £4K limit applies to the total of both your contributions and your employers contributions to any of your DC pensions. Is your employers pension DC? You could put money into your wife's SIPP within the various limits but she would get the tax relief.

Paul_Herring · 17 October 2018 at 8:48PM

gonedownthepub wrote: »

Thanks my wife does not have a sipp yet and I assume I can open another sipp which allows full contributions?

If you open it for yourself, you'd still be restricted to £4K.

If you open it for your wife, contributions will be restricted to whatever her circumstances are.

e.g.
- if she's not working then it's limited to £3.6K,
- if she's working then up to her gross salary.
- If she herself has already taken more than the 25% from any DC pensions, then like you she'll be restricted to £4K (subject to salary - see point above)

xylophone · 17 October 2018 at 8:48PM

Is your wife earning?

If so, does she have a workplace pension?

gonedownthepub · 17 October 2018 at 10:37PM

Hi yes she works and has civil service db pension and no SIPP.

xylophone · 17 October 2018 at 10:55PM

https://www.standardlife.co.uk/c1/guides-and-calculators/managing-your-pension-annual-allowance.page

FatherAbraham · 18 October 2018 at 6:48AM

gonedownthepub wrote: »

I have already taken my 25% tax free lump sum from my SIPP to invest in other property to help my daughter get on ladder.

That's not an investment, it's a donation (or a combination of a donation with an investment).

Drawdown whilst still working and tax implications

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