collecting a pension pot within your income tax allowance

[Gerry557]

Married female wanting to take some of her pension pot. No earnings and had transferred her married persons allowance and is a normal rate tax payer.

So I assume £12500 - £1260 = £11240 tax allowance remaining. Also has some untaxed savings interest which I assume could be covered by either £1k savings allowance and or £5k extra additional savings allowance with no earnings. I have asked her to guestimate this and off the top of her head said about £1k

So should be able to take £11240 out of the pot without paying tax.

The question is, Is tax taken from the pot on collection. If so I assume you claim it back from the tax man. I think I found a P55 form. Alternatively is there a way of getting the whole amount out with out being taxed. Ie some sort of declaration of unused tax allowance.

Apparently there are several options

1. Take my tax-free cash up front - also known as flexi-access drawdown.

2. Spread my tax-free cash over all withdrawals - also known as Uncrystallised Funds Pension Lump Sums(UFPLS)

3. Take my pension as a taxable lump sum - also known as Uncrystallised Funds Pension Lump Sums (UFPLS)


I think they were looking at 3 only because they have the unused tax allowance. I think they have several small pots this particular one being in the £11-12k range. So just under or just over the threshold.

I suspect even if they used option 1 they might get more up front cash but still be left with claiming tax back.

Thanks for any replies or incites on how it works in practice

[swill453]

The question is, Is tax taken from the pot on collection. If so I assume you claim it back from the tax man. I think I found a P55 form. Alternatively is there a way of getting the whole amount out with out being taxed. Ie some sort of declaration of unused tax allowance.

If only. In my experience there's no way of getting the whole allowance out without being over-taxed. Even having a valid up-to-date tax code doesn't help much.

In theory if you waited until the very end of the tax year before you made your withdrawal, it might work, but I think I recall somewhere here saying they did that and were still taxed too much.

Fortunately the online P55 process (https://www.gov.uk/guidance/claim-back- ... ayment-p55) is pretty straightforward, and you can fill it in as soon as you know what your annual income and tax deducted figures are. (EDIT: you need to make an estimate of savings interest and dividend income for the year.)

In my experience it can take from 3 to 8 weeks to get your tax back, depending how busy they are at HMRC.

Scott.

[SteelCamel]

If only. In my experience there's no way of getting the whole allowance out without being over-taxed. Even having a valid up-to-date tax code doesn't help much.

There is - take it in 12 monthly payments. It might get taxed to begin with as the provider won't have a correct tax code, but this should sort itself within a couple of months. And as you're getting the same amount each month, PAYE will correctly predict not going over your allowance and return any tax charged initially.

This isn't unique to pensions - it's part of the PAYE rules. If you have a seasonal job that only pays you once a year you'll probably hit the same issue.

[swill453]

There is - take it in 12 monthly payments.

Well of course, but the question I was answering was about what happens if you take it all out at once.

Scott.

[Gerry557]

I will suggest the monthly option but I think it was a lump they were after initially.

The P55 form might work. Its only a month or so to get the tax back but then leaves the question of what happens at the end of the tax year after guestimating the savings income.

Can you just email a final figure or will it require a tax return which might be a pain depending on circumstances.

[TallInvestor]

I have just been through the P55 process and it was painless. I received a letter a week or so after the refund appeared in my account stating that my estimates would be reviewed by HMRC at the end of the year and a charge or refund would be automatically applied if necessary. There was no suggestion that I would have to do anything and the onus is on HMRC. In the event, my estimate was good, so case closed.

This year I am taking monthly payments starting from 'month 1' and can confirm that the April payment was taxed correctly.

One tip with the P55 online form - I suggest downloading the paper form for reference as I found the wording less ambiguous than the online version.

[Gerry557]

Thanks for that update, I will pass on your comments.