First UFPLS from SIPP and tax implication

[pp2023]

Hi. I retired last year and organized all my DC pension pots into SIPP in Interactive Investor. So far I have not drawn down anything from the SIPP. Intend to make use of this financial year and draw £16760 without paying any tax. I plan to take the sum as UFPLS for this tax year. As far as I know I will be heavily taxed initially if I request it as a single sum as the assumption of II would be that I intend to draw down that amount every month. Can I go around being taxed heavily for the UFPLS? Would it work if I request a UFPLS of £1000 for February 2024 which can give me a tax code below 12570, so theoretically no tax deducted, then request the remaining sum of £15760 as a UFPLS in March? Just wondering is there a best tactic to prevent the initial tax being taken unnecessary.

[Gersemi]

Hi. I retired last year and organized all my DC pension pots into SIPP in Interactive Investor. So far I have not drawn down anything from the SIPP. Intend to make use of this financial year and draw £16760 without paying any tax. I plan to take the sum as UFPLS for this tax year. As far as I know I will be heavily taxed initially if I request it as a single sum as the assumption of II would be that I intend to draw down that amount every month. Can I go around being taxed heavily for the UFPLS? Would it work if I request a UFPLS of £1000 for February 2024 which can give me a tax code below 12570, so theoretically no tax deducted, then request the remaining sum of £15760 as a UFPLS in March? Just wondering is there a best tactic to prevent the initial tax being taken unnecessary.

That might work - but I'd be inclined to request the initial payment as soon as possible to give HMRC time to generate the code and your pension provider to implement it. Theoretically this can be done pretty quickly, but theory doesn't always match practice.

[Flummoxed]

It definitely can be done pronto

I wanted to avoid the admin of reclaiming overpaid tax and also have a SIPP with II.

I took the entire 25% tax free sum last summer, no tax issues, leaving only the taxable element.

Last week I took out £100 from the remaining pot and this prompted HMRC to issue a monthly (non-cumulative) tax code. This would still have caused a tax overpayment if I take a bigger amount this tax year so I called HMRC and arranged the correct code. In my case this was a D0 (annual/cumulative) code.

Timeline wise, the £100 withdrawal took place on the 23rd Jan, HMRC initial coding notification on 25th Jan, called HMRC around 4pm on Friday 26th Jan and recived notification of correct tax code on Monday 29th Jan. I was able to check the codes through the HMRC online portal and also confirmed online with II that they also have the correct tax code that avoid overpaid tax.

As a famous sports goods brand say "just do it"

[pp2023]

Sadly it did not work the way I hoped.
This is my first year of pension drawdown. I requested at the end of January my first 1000£ as UFPLS to get a correct tax code. No tax was taken. On 1st March I requested the remaining 15750£ (aiming to be just below 12570£ taxable income) for this tax year. A massive tax of over 3748£ was taken and tax code corrected to be 1113L ( why not 1257?). The basis is still month 1 despite the first small withdrawal. I was hoping that the first small withdrawal would set the tax correctly. It didn’t.
I have to sadly start the painful process of reclaiming the money without knowing when will they pay back. I know about form P55. I have the option of claiming online or filling the form and sending it to HMRC. Does anyone know which of these would be processed faster?
I don’t have any other income apart from the drawdown for this tax year. But I have savings that are not in an ISA. The form asks to fill in interest from savings for the full tax year. I don’t have the correct numbers for March as interest is not yet paid. I guess I can make a rough calculation. Is that good enough? Am I right to think that having an income under 12570£ gives me the right to have interest of 6000£ tax free automatically?

[xxd09]

Be reassured P55 works well- usually monies back within the month of claiming
You have to set up a Gov Gateway-straight forward process
Online P55 is the one that gets quickest results
I have been claiming this way for over 20 years -I take what I need once a year after 5th April so as to top up my 2 year cash living expenses buffer
I am in flexi drawdown (25% tax free already taken) so withdraw variable amounts each year and may go a few years just taking the difference between personal allowance and state pension only ~£3000+-I use ISAs for income as well ie tax free
I don’t really pay attention to my tax code -just reclaim what I think I am due -seems to work
xxd09

[Flummoxed]

Sorry to hear it did not work out for you this time, this is my first year of SIPP withdrawal so I have never completed the P55 process but as described by xxd09 it looks straight forward.

Some tax admin is involved in whatever method you choose but going down the tax code route there are actions you can take to avoid excess tax in future on SIPP withdrawals.

1. Initially check online with II what tax code they hold for you - if it is a monthly code then take a small amount from your SIPP e.g. £100 to kick start the HMRC process.
2. HMRC will then issue a P2 code notification letter - if this is not a cumulative code e.g. 1257L then phone them and explain your tax position and they will re-issue a cumulative code.
3. Once you have recieved another P2 code notification letter with your correct tax code check again that II also hold this code for you.
4. If II has your correct tax code then you can withdraw funds without excess tax being deducted.

Don't mean to labour the point but you must confirm that II have your correct tax code before an annual withdrawal. I have just completed this exact process and have not overpaid tax on my main withdrawal.

All the best

[pp2023]

Sorry to hear it did not work out for you this time, this is my first year of SIPP withdrawal so I have never completed the P55 process but as described by xxd09 it looks straight forward.

Some tax admin is involved in whatever method you choose but going down the tax code route there are actions you can take to avoid excess tax in future on SIPP withdrawals.

1. Initially check online with II what tax code they hold for you - if it is a monthly code then take a small amount from your SIPP e.g. £100 to kick start the HMRC process.
2. HMRC will then issue a P2 code notification letter - if this is not a cumulative code e.g. 1257L then phone them and explain your tax position and they will re-issue a cumulative code.
3. Once you have recieved another P2 code notification letter with your correct tax code check again that II also hold this code for you.
4. If II has your correct tax code then you can withdraw funds without excess tax being deducted.

Don't mean to labour the point but you must confirm that II have your correct tax code before an annual withdrawal. I have just completed this exact process and have not overpaid tax on my main withdrawal.

All the best

Thank you for your instructions. I will follow them. I did not call HMRC because with the first withdrawal I had the correct tax code 1257L. At the second withdrawal (being a big sum) however the code was changed without me understanding why to 1113L. I will have to claim back the tax. But I will definitely try to talk to HMRC and II to ensure correct tax code is applied in the future.