Pension Drawdown Tax Query (after the 25%)

[DSLiverpool]

If you cash money out of the drawdown your liable for tax at your current rate - question is is that deducted at source or do you declare it and pay with your tax return?

EG if I take £100 out is it £100 minus my tax liability or £100 and pay the tax later.

Cheers

[LeoSayer]

My understanding is that it's deducted at source.

If you withdrawn in one lump then you may find that an emergency tax rate is used resulting in you getting less than you expect and claiming back in your tax return. There have been quite a few stories about this in the press.

[JulianPH]

Yes. This sometimes (quite often in fact) results in HMRC assigning you the wrong tax code initially, but this is then sorted relatively smoothly.

Basically, HMRC's process is less than ideal, but providers have no option other than to adhere to it.

It works in exactly the same way (and indeed is exactly the same system) as employee payroll (just without the NI contributions).

[anonymous-user]

LeoSayer said:

My understanding is that it's deducted at source.

Yep. HMRC will provide the pension provider with the correct tax code and that’s about it.

[DSLiverpool]

Thank you both