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Taxation of pensions

BenValue
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Taxation of pensions

#282929

Postby BenValue » February 7th, 2020, 10:46 am

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?

Urbandreamer
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Re: Taxation of pensions

#282937

Postby Urbandreamer » February 7th, 2020, 10:57 am

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.

Howard
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Re: Taxation of pensions

#282939

Postby Howard » February 7th, 2020, 11:02 am

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

Chrysalis
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Re: Taxation of pensions

#282944

Postby Chrysalis » February 7th, 2020, 11:08 am

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.

DrBunsenHoneydew
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Re: Taxation of pensions

#283476

Postby DrBunsenHoneydew » February 10th, 2020, 5:14 pm

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).

BrummieDave
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Re: Taxation of pensions

#283501

Postby BrummieDave » February 10th, 2020, 8:38 pm

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.

Chrysalis
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Re: Taxation of pensions

#283533

Postby Chrysalis » February 11th, 2020, 6:55 am

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’.


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