Tax when drawing down from SIPP

[greengreenwood7]

Thinking about drawing out some funds from SIPP to pop into this years ISA;

background, did 1st drawdown last week ie/ last tax year and the intent would be to do the same 'now'. Last weeks had extra tax applied - in reality i now have no income ( accountant has a p45/60 that reflects this ).

wanted to ask teh great & the good. Given that i'd be making a withdrawal right at the beginning of the fin year, would HMRC assume that i'm going to keep taking other sums thru the course of the year and apply and annualised code for what i'm deeming to be a '1 off'?

Or do they see zero income, and then apply the 12.k personal limit and the 25% tax free. To be clear its just a nominal 20k or so that i'd want to pull out.

thanks folks.

[supersport]

Your tax allowance is applied accumulatively.

If only draw in March you have 12 months of allowance. If you draw in April only one.

[Sheepshanks]

greengreenwood7 said:

Given that i'd be making a withdrawal right at the beginning of the fin year, would HMRC assume that i'm going to keep taking other sums thru the course of the year…..

I was looking at doing this and my IFA warned me that exactly the above will happen - they apply a “month 1” emergency tax calculation.

I think ad-hoc withdrawals may always be treated like that.

[mikeiow]

Sheepshanks said:

greengreenwood7 said:

Given that i'd be making a withdrawal right at the beginning of the fin year, would HMRC assume that i'm going to keep taking other sums thru the course of the year…..

I was looking at doing this and my IFA warned me that exactly the above will happen - they apply a “month 1” emergency tax calculation.

I think ad-hoc withdrawals may always be treated like that.

Indeed they will.
There is a form you can fill to reclaim the tax early’ish if you want, but for lumps it would defo be easy at the end of the tax year!

[konark]

Hmrc will act as if you're going to be taking 20 grand a month, every month. So about £5,000 tax will be deducted. Depending on this year's taxable income you may get a refund of some, but not all, of that.

[Boringvolvodriver]

mikeiow said:

Indeed they will.
There is a form you can fill to reclaim the tax early’ish if you want, but for lumps it would defo be easy at the end of the tax year!

Indeed there is. When I did mine it took about 4 months to get the tax back and without a call to HMRC to check progress I suspect it would have taken even longer!

I had to pay some tax at 50% iirc!

[timberman]

Unfortunately They will almost certainly tax you as if you are taking £20k a month,

I take lump sums as and when needed and have been doing for years,

I usually take around £10k at a time so I always end up over paying income tax every year,

My pension provider does normally adjust the tax I pay across multiple lump sum withdrawals ( usually quite high on the 1st withdrawal of the new tax year but the next is often taxed a lot less or not at all) so that it evens out and isn't massively above what it should have been for the year,

around Feb/March time each year I submit an online form to request a refund ( P55 iirc)

I usually have the money in my account within a month of submitting the claim so it's not too big a hardship,

it would be nice if they could calculate my tax in a way that I didn't have to do this but I've basically just accepted it as the norm now and when the refund lands in our account it's a nice extra bit of cash for us to live on.

You could try breaking it up into several withdrawals,
perhaps taking £5k or less for the 1st lump sum which may get you a more sympathetic tax code before taking the rest.

[Arrivalist]

As has been said, you can ask for a refund of the tax if you tell HMRC that you intend to take no more in the FY. But that comes with a warning of penalties if you do, so best be sure.

I’ve just left it for HMRC to refund automatically the next FY (can’t remember if I asked online or it happened automatically) but the money was in my bank account within a couple of weeks iirc.

[greengreenwood7]

thx folks, confirmed my fears/thoughts - not ideal to have my monies tied up with hmrc even for a while as those funds are then 'out of the market'. will see if i can find a plan B and the just take monies in march for the following years ISA - assuming that the allowances stay the same!

[Cabbage Patch]

Have you already taken your tax free cash? If not you could move £80k from SIPP to Drawdown which results in a £20k payment of tax free cash. This could be invested in an ISA.

The remaining £60k can be drawn from on a monthly basis to give a regular income. This does away with the issues of being taxed on lump sums. The funds in drawdown can be kept in cash or invested as you see fit.

[greengreenwood7]

@cabbage patch....

i took circa 29k last week ie/ last fin year as my first drawdown, which netted circa 21.5k'ish after taxes.

my intent was not to use a chunk of the 'tax free' allowance, as later on that would hurt more - after all, the hope/plan is that the principle will continue to grow till i need to start taking income.

(always open to suggestions that i've got it/things wrong)

quite ok with leaving monies untouched in the sipp, it's just that it seemed like a good moment to flick more funds into isa with prices so low. can't really pull monies from the GIA.