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  • FIRST POST
    • squirrelpie
    • By squirrelpie 9th Apr 18, 2:41 PM
    • 30Posts
    • 7Thanks
    squirrelpie
    tax treatment of UFPLS
    • #1
    • 9th Apr 18, 2:41 PM
    tax treatment of UFPLS 9th Apr 18 at 2:41 PM
    I made a UFPLS withdrawal from my SIPP just before the end of the tax year. It's the first withdrawal I've made and I'm having trouble understanding the information I have so far received, so I'd appreciate any explanations or pointers to explanations!

    I withdrew 6666 gross. I expected that would give me 1666.50 tax free and 4999.50 taxable. I expected the taxable to be taxed at 20% thus tax of 999.90 and payment to me of 3999.60, giving me a net total payment of 5666.10. My taxable income was very low last year so I expect I will be able to claim the tax back later.

    But the provider has paid me 5608.34 and say they paid the taxman 1057.66. I don't understand how those sums were calculated. Can anybody enlighten me? (Yes, I will ask them, but I'd prefer to understand the situation first).

    By coincidence (?) I've also just received my new tax codes for this coming tax year. It includes a tax code for the SIPP provider. I don't understand why? I just made a one-off withdrawal; what assumptions has the taxman made? And do I need to change their minds somehow?
    Last edited by squirrelpie; 09-04-2018 at 2:44 PM. Reason: formatting
Page 1
    • Dox
    • By Dox 9th Apr 18, 2:49 PM
    • 648 Posts
    • 438 Thanks
    Dox
    • #2
    • 9th Apr 18, 2:49 PM
    • #2
    • 9th Apr 18, 2:49 PM
    Always worth asking the provider first in case the simple answer is 'mistake' !

    The taxman has no idea whether you will be drawing cash from your SIPP again any time soon - hence the provision of a tax code to the SIPP provider (as HMRC would for any pension scheme paying benefits).
    • Brynsam
    • By Brynsam 9th Apr 18, 2:50 PM
    • 1,134 Posts
    • 766 Thanks
    Brynsam
    • #3
    • 9th Apr 18, 2:50 PM
    • #3
    • 9th Apr 18, 2:50 PM
    Could be an error, so why not ask the SIPP provider now?
    • jcorbygas
    • By jcorbygas 9th Apr 18, 2:59 PM
    • 575 Posts
    • 279 Thanks
    jcorbygas
    • #4
    • 9th Apr 18, 2:59 PM
    • #4
    • 9th Apr 18, 2:59 PM
    We had this last week with a one off withdrawal. What it appears to be is that HMRC think that you are going to withdraw that amount each month so they tax you accordingly on the withdrawn amount x 12.
    So in your case it looks like they took off the 25% tax free, then the remainder x 12 is taxed at the 20% or 40% of the whole x 12 amount. If you go on to www.listentotaxman.com you can see that the amount you received works out like I said.
    There is an online form you can use with HMRC to get back tax that has been overpaid - I think its form P55

    Hope the above makes sense!
    • Linton
    • By Linton 9th Apr 18, 3:23 PM
    • 9,392 Posts
    • 9,526 Thanks
    Linton
    • #5
    • 9th Apr 18, 3:23 PM
    • #5
    • 9th Apr 18, 3:23 PM
    Pension payouts are taxed under PAYE. PAYE assumes that your income is spread evenly over the year amd therefore allocates 1/12 of your allowances and tax band limits to each month. Large one off payments can therefore attract a high rate of tax.

    Unused allowances/tax bands are accumulated each month so if you dont want to suffer a temporary high rate of tax you should make your one-off drawdown late in the tax year.

    However this doesnt work for the first time ever you receive a taxable payment as HMRC wont have issued a tax code. Under those circumstances you are usually taxed on an emergency code with a month-1 basis - ie with no month to month carry forward of allowances. After they find out that you have been paid by a new "employer" HMRC will issue a tax code.
    • squirrelpie
    • By squirrelpie 9th Apr 18, 4:29 PM
    • 30 Posts
    • 7 Thanks
    squirrelpie
    • #6
    • 9th Apr 18, 4:29 PM
    • #6
    • 9th Apr 18, 4:29 PM
    Thanks for the replies chaps.

    So in your case it looks like they took off the 25% tax free, then the remainder x 12 is taxed at the 20% or 40% of the whole x 12 amount. If you go on to www.listentotaxman.com you can see that the amount you received works out like I said.
    Ah, OK I get a number very close to what happened, so I think you're right.

    That seems brain dead though. Even if I was going to take further similar payments every month, all other payments would be in the next tax year! I can't see how it makes any possible sense to assume that I have been making payments which haven't actually happened? Is our tax system really that broken?

    There is an online form you can use with HMRC to get back tax that has been overpaid - I think its form P55
    Do I need to fill that out? I know I do if I take a payment earlier in the tax year and want to reclaim the tax straight away, but does the system not correct itself if I just wait until the end of the tax year (which has already passed) when HMRC add everything up and correct my tax bill?
    • Linton
    • By Linton 9th Apr 18, 5:05 PM
    • 9,392 Posts
    • 9,526 Thanks
    Linton
    • #7
    • 9th Apr 18, 5:05 PM
    • #7
    • 9th Apr 18, 5:05 PM
    Thanks for the replies chaps.

    Ah, OK I get a number very close to what happened, so I think you're right.

    That seems brain dead though. Even if I was going to take further similar payments every month, all other payments would be in the next tax year! I can't see how it makes any possible sense to assume that I have been making payments which haven't actually happened? Is our tax system really that broken?

    Do I need to fill that out? I know I do if I take a payment earlier in the tax year and want to reclaim the tax straight away, but does the system not correct itself if I just wait until the end of the tax year (which has already passed) when HMRC add everything up and correct my tax bill?
    Originally posted by squirrelpie
    The PAYE system is designed to run automatically with minimal admin both for HMRC and "employers" on the assumption that people are paid a fairly constant amount each month - eg for earnings, DB pensions and annuities. It works very well for that. One-off drawdown lump sums are a relatively new feature, at least as a mainstream feature. HMRC could either get a completely new system designed and implemented across all drawdown providers or make do with the system already in place. They, sensibly in my view, chose to do the latter.

    The system would correct itself at your next payment in the current tax year but since you havent got one, it wont. HMRC will sort everything out at the end of the tax year.
    • NorthernGeezer
    • By NorthernGeezer 9th Apr 18, 8:44 PM
    • 116 Posts
    • 20 Thanks
    NorthernGeezer
    • #8
    • 9th Apr 18, 8:44 PM
    • #8
    • 9th Apr 18, 8:44 PM
    The general feeling here is that your 1st withdrawal should be a small one so HMRC dont hammer you.
    • Dazed and confused
    • By Dazed and confused 9th Apr 18, 9:15 PM
    • 2,629 Posts
    • 1,258 Thanks
    Dazed and confused
    • #9
    • 9th Apr 18, 9:15 PM
    • #9
    • 9th Apr 18, 9:15 PM
    The tax deducted (after allowing for the emergency tax code allowances) is,

    2791.66 x 20% = 558.33
    1248.34 x 40% = 499.33

    Total tax deducted 1057.66
    • squirrelpie
    • By squirrelpie 10th Apr 18, 10:45 AM
    • 30 Posts
    • 7 Thanks
    squirrelpie
    They, sensibly in my view, chose to do the latter.
    I quite understand that point. IMHO, though, the system wasn't designed sensibly for the continuous case either, although it would probably sort the mistake out faster in that case.

    The system would correct itself at your next payment in the current tax year but since you havent got one, it wont. HMRC will sort everything out at the end of the tax year.
    Just to be clear, do you mean the end of the 2017/18 tax year or the 2018/19 tax year?

    The general feeling here is that your 1st withdrawal should be a small one so HMRC dont hammer you.
    Agreed, but there wasn't time for that. My fault for not planning far enough ahead, I know.

    2791.66 x 20% = 558.33
    1248.34 x 40% = 499.33

    Total tax deducted 1057.66
    The total is correct, but where do the 2791.66 and especially the 1248.34, come from?
    • molerat
    • By molerat 10th Apr 18, 11:04 AM
    • 18,776 Posts
    • 12,902 Thanks
    molerat
    The total is correct, but where do the 2791.66 and especially the 1248.34, come from?
    Originally posted by squirrelpie
    They have used 1150M1 tax code so 959.09 would be free of tax and the rest taxable as stated (although the tax calculation tables make the allocation of those figures slightly different but the same total tax). 4999.50 subject to tax. 959.09 tax free allowance leaving 4040 taxable. 2792 at 20% = 558.46 and 1248 at 40% = 499.20 = 1057.66 total tax deducted.
    Last edited by molerat; 10-04-2018 at 11:13 AM.
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    • Tom99
    • By Tom99 10th Apr 18, 11:46 AM
    • 2,226 Posts
    • 1,509 Thanks
    Tom99
    I quite understand that point. IMHO, though, the system wasn't designed sensibly for the continuous case either, although it would probably sort the mistake out faster in that case.

    Just to be clear, do you mean the end of the 2017/18 tax year or the 2018/19 tax year?

    Agreed, but there wasn't time for that. My fault for not planning far enough ahead, I know.

    The total is correct, but where do the 2791.66 and especially the 1248.34, come from?
    Originally posted by squirrelpie
    2791.66*12=33,500 ie the 20% band
    • squirrelpie
    • By squirrelpie 10th Apr 18, 1:01 PM
    • 30 Posts
    • 7 Thanks
    squirrelpie
    the tax calculation tables
    Ah, thanks. That's the bit I was missing. When I use those I can reproduce the sum. I also got a letter from the SIPP provider today, with the payment details confirming the tax code etc, so that's all fairly tidy in my mind now.

    The only question I have left now is when HMRC will correct the overpayment without prompting?
    • mark1959
    • By mark1959 10th Apr 18, 7:33 PM
    • 310 Posts
    • 347 Thanks
    mark1959
    Without prompting probably quite a while. With prompting, online with form p55 or phoning up, within a couple of weeks.
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