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Tax Claim from a Pension

NegevSouth
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Tax Claim from a Pension

#293219

Postby NegevSouth » March 22nd, 2020, 5:00 pm

My wife has not worked for over 20 years. Her income is zero and isn't eligible for state pension until 2022.

She paid £2880 into a Hargreaves Landsown SIPP earlier this year, keeping the money in cash.
In a few weeks, after 6th April she will pay a further amount of £2880 into the above.
So by early summer she'll have £7200 in the fund and she wants to withdraw £7100.

Will HL tax her on £7100 @ 20% using an emergency code? If so, how does she go about claiming back the tax?
I imagine her tax code, if somehow she obtains one, would be something like 1250L, but HL wouldn't know that the £7100 is below her personal tax allowance would they?

swill453
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Re: Tax Claim from a Pension

#293222

Postby swill453 » March 22nd, 2020, 5:05 pm

Yes it'll be taxed with an emergency code. If she waits, it'll eventually get refunded automatically after the end of the tax year.

If she'd rather not wait, she can reclaim it by filling in an online P55 form https://www.gov.uk/government/publicati ... -claim-p55

Scott.

DrBunsenHoneydew
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Re: Tax Claim from a Pension

#293410

Postby DrBunsenHoneydew » March 23rd, 2020, 12:03 pm

25% of the crystallised amount will be tax free - only the remaining balance drawn down gets the "Month 1" Basic Rate Code

terminal7
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Re: Tax Claim from a Pension

#293415

Postby terminal7 » March 23rd, 2020, 12:12 pm

Forgive me if I am incorrect but I would be very surprised the Revenue would allow what you are doing. Maybe someone with greater knowledge can comment. The idea that you can put in the max of £2880 in say April receive the reclaim and then effectively withdraw it all - obviously subject to the timing of mechanisms explained by swill453 - and in effect pocket £720 seems unlikely. If this was allowable, there would be millions of people (including accounts for children) that would be doing this every tax year.

Again apologises if my understanding is wrong.

T7

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Re: Tax Claim from a Pension

#293428

Postby DrBunsenHoneydew » March 23rd, 2020, 12:50 pm

terminal7 wrote:Forgive me if I am incorrect but I would be very surprised the Revenue would allow what you are doing. Maybe someone with greater knowledge can comment. The idea that you can put in the max of £2880 in say April receive the reclaim and then effectively withdraw it all - obviously subject to the timing of mechanisms explained by swill453 - and in effect pocket £720 seems unlikely. If this was allowable, there would be millions of people (including accounts for children) that would be doing this every tax year.

Again apologises if my understanding is wrong.

T7

It's perfectly allowable. But the pension company will levy charges that consume part of your profit (which I expect is why the OP is leaving £100 in the account and not closing completely, avoiding closure/reopening fees next time around).

swill453
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Re: Tax Claim from a Pension

#293429

Postby swill453 » March 23rd, 2020, 12:53 pm

DrBunsenHoneydew wrote:
terminal7 wrote:Forgive me if I am incorrect but I would be very surprised the Revenue would allow what you are doing. Maybe someone with greater knowledge can comment. The idea that you can put in the max of £2880 in say April receive the reclaim and then effectively withdraw it all - obviously subject to the timing of mechanisms explained by swill453 - and in effect pocket £720 seems unlikely. If this was allowable, there would be millions of people (including accounts for children) that would be doing this every tax year.

Again apologises if my understanding is wrong.

T7

It's perfectly allowable. But the pension company will levy charges that consume part of your profit (which I expect is why the OP is leaving £100 in the account and not closing completely, avoiding closure/reopening fees next time around).

Also bear in mind that anything put in a pension can't be extracted till age 55 (soon to be increased).

Scott.

NegevSouth
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Re: Tax Claim from a Pension

#293458

Postby NegevSouth » March 23rd, 2020, 2:22 pm

[/quote]
It's perfectly allowable. But the pension company will levy charges that consume part of your profit (which I expect is why the OP is leaving £100 in the account and not closing completely, avoiding closure/reopening fees next time around).[/quote]

Correct. Until quite recently, Hargreaves Landsown charged about £350 if the balance in the fund became less than £1000. Now they don't charge as long as one keeps the account open with a nominal amount.

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Re: Tax Claim from a Pension

#293539

Postby DeepSporran » March 23rd, 2020, 7:45 pm

NegevSouth wrote:Correct. Until quite recently, Hargreaves Landsown charged about £350 if the balance in the fund became less than £1000. Now they don't charge as long as one keeps the account open with a nominal amount.


In fact Hargreaves Lansdown will still close the account if the balance goes below £1000, but they no longer apply the punitive £350 closing fee. So you either have to leave £1000 in the account or you have to open a new one every year if you want keep taking advantage of the (up to) £720 benefit.

terminal7
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Re: Tax Claim from a Pension

#293662

Postby terminal7 » March 24th, 2020, 11:35 am

Thanks guys for the elucidation but bear with me. It is easier to present my query by way of example - I use the max for illustrative purposes.

Assume I am a non tax payer and have say £3k in my bank account. In TY 19/20 I place the £2880 in a SIPP and receive £720 from the Revenue. In TY 20/21 I transfer £2880 from the SIPP back to my bank account (or maybe a different bank account). Subsequently in 20/21, I place £2,880 into the SIPP and in due course receive £720 from the Revenue. I do this year after year effectively recycling the initial £2,880 and receiving £720 every year. All this is aside of possible costs imposed by HL or other platforms as well as changes to the SIPP regulation.

Have I got the process correctly? If you can do the above as described or possibly vary it so the recipient bank account in any tax year is different to the sending bank account - this is effectively providing 25% annual interest on an initial £2,880 investment.

swill453
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Re: Tax Claim from a Pension

#293666

Postby swill453 » March 24th, 2020, 11:45 am

terminal7 wrote:Thanks guys for the elucidation but bear with me. It is easier to present my query by way of example - I use the max for illustrative purposes.

Assume I am a non tax payer and have say £3k in my bank account. In TY 19/20 I place the £2880 in a SIPP and receive £720 from the Revenue. In TY 20/21 I transfer £2880 from the SIPP back to my bank account (or maybe a different bank account). Subsequently in 20/21, I place £2,880 into the SIPP and in due course receive £720 from the Revenue. I do this year after year effectively recycling the initial £2,880 and receiving £720 every year. All this is aside of possible costs imposed by HL or other platforms as well as changes to the SIPP regulation.

Have I got the process correctly? If you can do the above as described or possibly vary it so the recipient bank account in any tax year is different to the sending bank account - this is effectively providing 25% annual interest on an initial £2,880 investment.

Pretty much correct at a high level, but "transfer £2880 from the SIPP back to my bank account" isn't quite as simple as that. You have to apply for a UFPLS (Uncrystallised Funds Pension Lump Sum) from the SIPP provider, which is paid 25% tax-free and 75% effectively through the provider's payroll system. This will be taxed with an emergency Month 1 tax code, and you have to get the excess tax back from HMRC.

So with a bit of hassle - yes.

EDIT: (Separate bank accounts don't matter. The deposit is usually by debit card, the drawdown payment direct to a bank account, nobody is checking if they're the same.)

Scott.

NegevSouth
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Re: Tax Claim from a Pension

#293672

Postby NegevSouth » March 24th, 2020, 12:04 pm

DeepSporran wrote:
NegevSouth wrote:In fact Hargreaves Lansdown will still close the account if the balance goes below £1000, but they no longer apply the punitive £350 closing fee. So you either have to leave £1000 in the account or you have to open a new one every year if you want keep taking advantage of the (up to) £720 benefit.


I phoned Hargreaves Lansdown to check this and a rep informed me that you only need to keep £50 in the account in order for it to remain open.

terminal7
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Re: Tax Claim from a Pension

#293678

Postby terminal7 » March 24th, 2020, 12:17 pm

Thanks Scott.

Fully understand the 'hassle factor'. Of course many people who do not pay tax would not have the initial means and/or the capability (i.e. access to computer) of undertaking the processes involved.

To very slightly digress and with declared interest from the chattering classes - I assume this process applies for instance to accounts set up and funded/managed by grandparents for grandchildren (I assume there is a cut off age for the child - 16 or 18).

T7

swill453
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Re: Tax Claim from a Pension

#293685

Postby swill453 » March 24th, 2020, 12:37 pm

terminal7 wrote:To very slightly digress and with declared interest from the chattering classes - I assume this process applies for instance to accounts set up and funded/managed by grandparents for grandchildren (I assume there is a cut off age for the child - 16 or 18).

Well the obvious way in which your described process doesn't apply to grandchildren is that they can't withdraw anything from a pension until age 55 (or later).

The funding and tax relief part would work though, I don't even think there is a cut off age though someone else might confirm.

Scott.

terminal7
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Re: Tax Claim from a Pension

#293735

Postby terminal7 » March 24th, 2020, 3:16 pm

Well the obvious way in which your described process doesn't apply to grandchildren is that they can't withdraw anything from a pension until age 55


:oops:

T7

is there a hang your head in shame emoji?

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Re: Tax Claim from a Pension

#293790

Postby DrBunsenHoneydew » March 24th, 2020, 6:48 pm

swill453 wrote:
terminal7 wrote:To very slightly digress and with declared interest from the chattering classes - I assume this process applies for instance to accounts set up and funded/managed by grandparents for grandchildren (I assume there is a cut off age for the child - 16 or 18).

Well the obvious way in which your described process doesn't apply to grandchildren is that they can't withdraw anything from a pension until age 55 (or later).

The funding and tax relief part would work though, I don't even think there is a cut off age though someone else might confirm.

Scott.

SIPPs for children can start at birth.

And as an aside in these days of exponential compounded growth of viruses, note that if a parent pays £X a year into a child's pension for their first 18 years and then stops, those funds will generate a bigger pension than an alternative similarly invested pension plan that the child starts at age 18 and contributes £X a year for their entire life, even if they were to live and pay in for a hundred years (or a thousand, or a million).

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Re: Tax Claim from a Pension

#293806

Postby AJC5001 » March 24th, 2020, 7:36 pm

DrBunsenHoneydew wrote:SIPPs for children can start at birth.

And as an aside in these days of exponential compounded growth of viruses, note that if a parent pays £X a year into a child's pension for their first 18 years and then stops, those funds will generate a bigger pension than an alternative similarly invested pension plan that the child starts at age 18 and contributes £X a year for their entire life, even if they were to live and pay in for a hundred years (or a thousand, or a million).


But what happens if the £X a year is increased by inflation every year?

Adrian

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Re: Tax Claim from a Pension

#294248

Postby mearnsfool » March 25th, 2020, 8:51 pm

The max you can pay in is £2,880 per year and has been for many years. The maximum limit does not increase at all per year and is still at its 2001 level.

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Re: Tax Claim from a Pension

#299590

Postby DeepSporran » April 10th, 2020, 12:34 pm

NegevSouth wrote:
DeepSporran wrote:
NegevSouth wrote:In fact Hargreaves Lansdown will still close the account if the balance goes below £1000, but they no longer apply the punitive £350 closing fee. So you either have to leave £1000 in the account or you have to open a new one every year if you want keep taking advantage of the (up to) £720 benefit.


I phoned Hargreaves Lansdown to check this and a rep informed me that you only need to keep £50 in the account in order for it to remain open.


Sorry for this late response - I missed your post.
It sounds like HL may be applying some discretion re the minimum balance required. The T&Cs currently available on the HL website still say (sections D7 and E1) that they may (not will) close the account if balance is less than £1000 but the rep you spoke to is suggesting that a £50 balance is sufficient.

However, my experience several months ago (but definitely after HL announced the scrapping of the closure fees) was that when I tried to request a one-off withdrawal from my drawdown account which reduced the balance to less than £1000 (but more than £50), I got a warning message which stated that I’d have to withdraw everything and the account would be closed, so I cancelled the transaction.

Maybe they will only apply their discretion in your favour if you deal by phone. Or maybe they hadn’t tweaked their online facility at that point.

Either way, your information obtained from the the rep is very useful - thanks.


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