Got a credit card? use our Credit Card & Finance Calculators
Thanks to Rhyd6,eyeball08,Wondergirly,bofh,johnstevens77, for Donating to support the site
Taxation of pensions
Taxation of pensions
I have 2 pensions:- a SIPP and a small workplace pension. I am thinking of drawing down income and capital from the small workplace pension but I will not touch the SIPP. If I start taking income from the workplace pension will I also have to pay tax on the income rolling up in the SIPP?
-
- Lemon Quarter
- Posts: 3189
- Joined: December 7th, 2016, 9:09 pm
- Has thanked: 357 times
- Been thanked: 1049 times
Re: Taxation of pensions
Not until you take the income from your SIPP.
Income tax is due upon income. Hence you would pay the tax if you have enough income to be a tax payer when you draw from the SIPP.
Meanwhile any dividends can be reinvested tax free.
Income tax is due upon income. Hence you would pay the tax if you have enough income to be a tax payer when you draw from the SIPP.
Meanwhile any dividends can be reinvested tax free.
-
- Lemon Quarter
- Posts: 2193
- Joined: November 4th, 2016, 8:26 pm
- Has thanked: 887 times
- Been thanked: 1021 times
Re: Taxation of pensions
I am not a financial expert but I have a SIPP.
Before I took income from it, dividends and capital gains were substantial. They were not liable for tax so long as they stayed inside the SIPP wrapper.
As soon as I started taking income from the SIPP by drawdown then this income was liable for income tax in the normal way ie it just added to my other pension income and I declared it to HMRC through self-assessment. The SIPP provider gave me the information required every year.
Out of interest, I took the 25% tax free lump sum early on. This had no effect on the above situation. I started drawdown of income several years later.
Hope this is helpful. I don't believe this situation has changed. But others may comment further.
regards
Howard
Before I took income from it, dividends and capital gains were substantial. They were not liable for tax so long as they stayed inside the SIPP wrapper.
As soon as I started taking income from the SIPP by drawdown then this income was liable for income tax in the normal way ie it just added to my other pension income and I declared it to HMRC through self-assessment. The SIPP provider gave me the information required every year.
Out of interest, I took the 25% tax free lump sum early on. This had no effect on the above situation. I started drawdown of income several years later.
Hope this is helpful. I don't believe this situation has changed. But others may comment further.
regards
Howard
-
- Lemon Slice
- Posts: 736
- Joined: November 4th, 2016, 10:58 am
- Has thanked: 247 times
- Been thanked: 230 times
Re: Taxation of pensions
BenValue wrote:I have 2 pensions:- a SIPP and a small workplace pension. I am thinking of drawing down income and capital from the small workplace pension but I will not touch the SIPP. If I start taking income from the workplace pension will I also have to pay tax on the income rolling up in the SIPP?
As others have said, you only pay tax on pensions on withdrawal. 25% of a DC pot can usually be taken tax free.
One key rule to be aware of, if you start taking taxable money from a DC pension (ie more than the tax free cash) then the tax relief on future DC pension contributions is restricted - a maximum of £4000 gross will attract tax relief (money purchase annual allowance).
It may be worthwhile taking up your free Pensionwise appointment before you make any decisions.
-
- Lemon Slice
- Posts: 555
- Joined: November 10th, 2016, 10:04 am
- Has thanked: 65 times
- Been thanked: 158 times
Re: Taxation of pensions
It's not so simple as saying "you only pay tax on pensions on withdrawal".
You can be required to pay tax on the amounts paid into a DC pension (either your own contributions or those of an employer) if the total paid in exceeds your personal annual pension allowance.
For defined benefit pensions you are taxed on the change in the deemed value of your pot rather than the contributions, and that change can be very large even though your contributions are small (or even zero).
You can be required to pay tax on the amounts paid into a DC pension (either your own contributions or those of an employer) if the total paid in exceeds your personal annual pension allowance.
For defined benefit pensions you are taxed on the change in the deemed value of your pot rather than the contributions, and that change can be very large even though your contributions are small (or even zero).
-
- Lemon Slice
- Posts: 818
- Joined: November 6th, 2016, 7:29 pm
- Has thanked: 200 times
- Been thanked: 378 times
Re: Taxation of pensions
DrBunsenHoneydew wrote:It's not so simple as saying "you only pay tax on pensions on withdrawal".
In answering the OP, it is that simple.
-
- Lemon Slice
- Posts: 736
- Joined: November 4th, 2016, 10:58 am
- Has thanked: 247 times
- Been thanked: 230 times
Re: Taxation of pensions
BrummieDave wrote:DrBunsenHoneydew wrote:It's not so simple as saying "you only pay tax on pensions on withdrawal".
In answering the OP, it is that simple.
If we qualify our answer to ‘income tax’.
Return to “Pensions - Practical Problems”
Who is online
Users browsing this forum: No registered users and 10 guests