First SIPP drawdown payment, 40% tax taken?

[98elise]

I've just taken my first drawdown payment from my SIPP, which I've done as a one off for the year. I was expecting to pay 20% tax as I've not paid high rate tax for a few years, however they have deducted a little over 40%.

H&L say the tax man will sort it out at the end of the year, however that seems wrong. Why would they take many 1000's in tax up front?

My tax code is suffixed 1M which they tell me is being taxed on a Month 1 basis?

[2 sMoKiN bArReLs]

Similar happened to me too.

The pension folk used a Wk1 code. Unfortunately I took my payment in the last month of the tax year, so had to go through hoops to get the refund.

[leef44]

If you are registered online then you can start the discussion with HMRC.

For simplicity this seems to be default way for them to deal with new income in a tax year. Without knowing all your other income status they would tend to start from here.

You can explain to them your income position e.g. if you have no other taxable income in the year and this will be your only income going forward for the tax year. They can then adjust your tax code to match your current position.

[Mazinbrum]

If it’s a large amount HMRC assume you will be paid this amount every month from now till the end of the tax year, it’s a crap system. You can either claim it back or you’ll automatically get a refund next year.
Dunno if it makes a difference but I always update my expected yearly income on the HMRC website.

[PistonHead007]

Pension providers don't get your tax code until after your first payment so emergency rate tax is applied to begin with. The exception is where you have a P45 for the tax year in question.

Reclaim here: https://www.gov.uk/government/publications/flexibl...

[98elise]

Thanks all. I'll have a chat with the tax man in the morning. My total income for the year will be < 50k so I wasn't expecting to much to be deducted.

I was withdrawing the cash for a specific purpose and I'm now quite a few thousand short!

[chip*]

Just fill in and submit the P55 form as per Pistonhead's post above.

as a fyi, IIRC, there are other P5* (P50Z, P53, P53Z etc..) forms available for tax reclaim covering different pension drawdown scenarios.

[98elise]

chip* said:

Just fill in and submit the P55 form as per Pistonhead's post above.

as a fyi, IIRC, there are other P5* (P50Z, P53, P53Z etc..) forms available for tax reclaim covering different pension drawdown scenarios.

Thanks I didn't realise it was a specific claim for pension tax overpayments.

[98elise]

Tried filling in the various forms but have been stumped by them.

Before you fill out the forms it says not to include estimated Self Assessment income unless you want it included in the calculations. In the form it then wants to know about income since I stopped working and specifically mentions property income (which I have).

I stopped working in a previous tax year so I have a mix of taxed and untaxed income since I stopped working, and I won't know this year's income (assume profit) until the end of this tax year.

My tax position is actually quite simple. This tax year I will receive Property income + SIPP drawdown which in total will be < 50k. I should pay 20% on anything above the tax free threshold.

I think I'll call them!

Edited to add.

Just realised that either way they have screwed me. I need the cash to complete a property deal next Friday, and the forms asked what address to send any refund to!

I guess my first call will be to my bank to arrange a loan to tide me over until this mess is sorted

Edited by 98elise on Friday 26th November 19:11

[98elise]

Sorted (I hope!)

I somehow had 50k of Non Coded Income against my PAYE. Trying to get that removed proved quite a challenge. I tried filling in forms, and using the chat function but that resulted in...

The Non Coded Income being removed
My pension payment being wrong
My property income being listed under PAYE

They couldn't help me with the overpayment.

Tried filling in the P55 again. This time it didn't ask me about employment, but it did ask about pension income twice, so it looked like I was recieving double pension for the year.

Called the call center and they told me to only enter the pension payments once, and to answer "No" to one of the questions that specifically asks for your UK pension income. The guy didn't seem certain so I hope they record calls!

[Wings]

Long time since I made a deduction payment from my H&L SIPPs, but I believe 25% of the withdrawal sum was tax free, with one allowed to request gross payment of the remaining 75%, for the tax payer to pay the tax at a later date.

[98elise]

Wings said:

Long time since I made a deduction payment from my H&L SIPPs, but I believe 25% of the withdrawal sum was tax free, with one allowed to request gross payment of the remaining 75%, for the tax payer to pay the tax at a later date.

I took the 25% tax free lump sum a while back so this should be taxed like any other income (added to any other income and subject to the normal tax bands).

The tax is deducted by H&L (a bit like getting paid by an employer). My tax code has now changed on my H&L account so it looks promising for future payments. If my refund gets processed then everything should be sorted.

At the end of the tax year it will be reconciled through self assessment, but going by my current code it should be pretty close.

[98elise]

Seems I was wildly optimistic thinking it was sorted.

Since speaking to them my tax code has changed 3 times, and it's now BR-1M. I've also heard nothing about the excessive tax deduction.

Back on the phone on Monday to find out what's going on.