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    • jem1961
    • By jem1961 8th Feb 18, 3:38 PM
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    jem1961
    How much tax?
    • #1
    • 8th Feb 18, 3:38 PM
    How much tax? 8th Feb 18 at 3:38 PM
    Hi all, my husband wants to draw 20,000 from his draw down pension product in the next tax year. He has Dementia and gets upset that he can't work out the tax he will have to pay. I have power of attorney but I do not quite understand how the tax system works either. He receives 5,315in benefits each year and is a basic rate tax payer. Could anyone tell me how much tax he will have to pay on this withdrawal please. Sorry if this a simple question but I am new to all this as I always let him sort out financial matters.
Page 1
    • cloud_dog
    • By cloud_dog 8th Feb 18, 4:22 PM
    • 3,687 Posts
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    cloud_dog
    • #2
    • 8th Feb 18, 4:22 PM
    • #2
    • 8th Feb 18, 4:22 PM
    Hi all, my husband wants to draw 20,000 from his draw down pension product in the next tax year. He has Dementia and gets upset that he can't work out the tax he will have to pay. I have power of attorney but I do not quite understand how the tax system works either. He receives 5,315in benefits each year and is a basic rate tax payer. Could anyone tell me how much tax he will have to pay on this withdrawal please. Sorry if this a simple question but I am new to all this as I always let him sort out financial matters.
    Originally posted by jem1961
    Hi

    It depends on the benefits he is in receipt of, some do not count towards income tax. This list of benefits on the Citizens Advice website list those that do not count towards income tax.

    If we assume that none of the benefits are taxable then it is relatively simple. for 2018/2019 tax year you are allowed to earn 11850 tax free before being taxed at 20%. So in relation to your query 8150 would be taxable income (20000 - 11850). So he would pay 1630 in tax and would be left with 18370.

    This all assumes there is no other income that counts towards taxable earnings and that the benefits in receipt also do not count as taxable earnings.

    The other thing to be aware of is to understand if having 20k would mean that some/all of his benefits may be stopped?
    Personal Responsibility - Sad but True

    Sometimes.... I am like a dog with a bone
    • jem1961
    • By jem1961 8th Feb 18, 5:05 PM
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    jem1961
    • #3
    • 8th Feb 18, 5:05 PM
    • #3
    • 8th Feb 18, 5:05 PM
    Sorry I should have said the 5315 is taxable, but he has no other income.
    • xylophone
    • By xylophone 8th Feb 18, 5:34 PM
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    xylophone
    • #4
    • 8th Feb 18, 5:34 PM
    • #4
    • 8th Feb 18, 5:34 PM
    Your husband succeeded in transferring his DB pension to a DC pension and has already taken the maximum PCLS?

    In view of his health, at the age of 56/7 he is now unable to work and on ESA?

    See https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/417473/pension-flexibilities-dwp-benefits.pdf

    If your husband has taken the PCLS then the withdrawal is taxed as income in the year of receipt.

    Is his intention to draw the money as one payment or take it in regular amounts over the tax year?

    If he draws it as one payment, it is likely that he will be overtaxed.

    If he draws it down on a regular payment basis, the HMRC coding should have his tax position correct within a few weeks of his starting to take the income.

    https://www.investcentre.co.uk/Resources/Content/PDF/AJBIC_Taxation_of_flexible_pension_payments_QAs.pd f
    • cloud_dog
    • By cloud_dog 8th Feb 18, 5:34 PM
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    cloud_dog
    • #5
    • 8th Feb 18, 5:34 PM
    • #5
    • 8th Feb 18, 5:34 PM
    So, of the combined (20k + 5315) he would pay tax of 2693, and the net income for 18/19 FY would be 22622.

    EDIT: xylophone's caveat around PCLS not withstanding.

    EDIT: EDIT: Do your own earnings exceed your personal allowance? If not, then you could transfer 10% of your personal allowance to your husband (increasing his tax free allowance to 13035; I think).
    Last edited by cloud_dog; 08-02-2018 at 5:38 PM.
    Personal Responsibility - Sad but True

    Sometimes.... I am like a dog with a bone
    • jem1961
    • By jem1961 9th Feb 18, 11:17 AM
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    jem1961
    • #6
    • 9th Feb 18, 11:17 AM
    • #6
    • 9th Feb 18, 11:17 AM
    Thank you all for your help, he has already drawn the full PCLS last year and intends to draw the 20,000 this year in one go, I get 2640 carers allowance and no other income. I believe I can claim the tax back if he is overcharged though.
    • Dazed and confused
    • By Dazed and confused 9th Feb 18, 11:51 AM
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    Dazed and confused
    • #7
    • 9th Feb 18, 11:51 AM
    • #7
    • 9th Feb 18, 11:51 AM
    If he takes 20,000 all in one go next tax year then the pension company would normally deduct around 7k in tax.

    But based on your other posts he will ultimately only be liable to pay 2.7k in tax for 2018:19 (I have assumed slightly higher benefit amount for next year) so he can get about 4.3k of the tax deducted back.

    And if you apply for Marriage Allowance he will get another 238 knocked off his 2018:19 tax bill.
    • Dazed and confused
    • By Dazed and confused 9th Feb 18, 12:03 PM
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    Dazed and confused
    • #8
    • 9th Feb 18, 12:03 PM
    • #8
    • 9th Feb 18, 12:03 PM
    I'm sure he has his reasons but why isn't he taking part of it between now and 5 April and rest in the next tax year?
    • xylophone
    • By xylophone 9th Feb 18, 12:45 PM
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    xylophone
    • #9
    • 9th Feb 18, 12:45 PM
    • #9
    • 9th Feb 18, 12:45 PM
    OP, have you read through the information concerning pension flexibility and benefits linked in my post above?
    • jem1961
    • By jem1961 9th Feb 18, 4:26 PM
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    jem1961
    Thanks for your reply, he has already taken 10,000 in this tax year.
    • Dazed and confused
    • By Dazed and confused 9th Feb 18, 6:24 PM
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    Dazed and confused
    Thanks for your reply, he has already taken 10,000 in this tax year.

    You could have mentioned that earlier as it means a lot of the previous posts are going to be wrong. As he has already taken a payment the pension company should now have a tax code to use so the initial tax deducted is likely to be different to what has been quoted in earlier posts.

    And as he has made himself liable to tax in this tax year you may wish to consider applying for Marriage Allowance as this is likely to save your husband 230 in tax.

    That is of course assuming that your earlier comment I get 2640 carers allowance and no other income is the whole story as far as you yourself are concerned.
    • jem1961
    • By jem1961 10th Feb 18, 10:20 AM
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    jem1961
    There is no need to be like that like, I did say at the beginning I am new to all this, and believe it or not your loved one getting this horrible condition does tend to take up a lot of you thoughts. Then again someone as perfect as you it probably wouldn't, you would have perfect way of coping and probably would be able to make money out of it as well. Thank you everyone for your help, I will now go and try to explain this to him.
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