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Original poster

Hercules tax increase after taking 25% pension at 55

12 replies

hmrcwhatnow · 15/01/2023 14:08

As above I took 25% of my pension at 55 and just received an hmrc letter saying I have underpaid tax. I will log on to my tax account but just sense checking here first. Seems a misnomer if it tax free but I am taxed on it (or some of it?) I am paye so other income but my work salary.

OP posts:

Original poster

hmrcwhatnow · 15/01/2023 14:09

Oops Hercules should read hmrc! Regular that name changed for this.

OP posts:

EyesOnThePies · 15/01/2023 14:11

What is your state pension age?

I think you can only withdraw pension tax free 10 years before state pension age. Could that be the reason?

maeveiscurious · 15/01/2023 14:12

Did you take advice on taking the tax free cash

MrsDanversGlidesAgain · 15/01/2023 14:21

IIRC HMRC will calculate your tax based on the assumption that the 25% tax free to your income is an increase and not a one-off and adjust your tax accordingly. It shouldn't affect your personal allowance so does HMRC know it's your tax free lump sum? they might think you've had a stupendous pay rise.

Christmascracker0 · 15/01/2023 14:39

You usually get a tax calculation with the letter which should say why you have underpaid tax.

It won’t be because of the lump sum - if it is the pension provider has done something wrong.

If you took your state pension as well during the year it may be because of that. HMRC will adjust your tax code to account for the state pension but it’s not always correct in the first year.

MrsDanversGlidesAgain · 15/01/2023 15:00

OP says she's 55. She won't be taking SP, but she might be taking a private one.

teenagetantrums · 15/01/2023 15:04

I took 25% out of one of my pension this year when l turned 55. It hasn't affected my tax at all. The 25% is tax free. How would the government even know you had done it..mine was paid straight into my bank by standard life

Original poster

hmrcwhatnow · 16/01/2023 07:14

Thanks all will take a look online today.

OP posts:

Oblomov22 · 16/01/2023 07:24

When exactly, month and year did you take the 25%?

saveforthat · 16/01/2023 07:30

The tax free cash is exactly what it says on the tin and does not affect your tax in any way. That said mistakes can be made so check out why they think you have underpaid.

RandomPerson42 · 16/01/2023 13:06

When you take a first taxable amount from your pension HMRC assume this is a new monthly amount. E.g. if you take out £12k taxable income as a first lump they will assume you will take that out every month.

Maybe you took out taxable income by mistake?
e.g. you might have chosen to take out £12k of which £3k was not taxable and £9k was. Therefore, HMRC might have assumed you will be doing the same every month.

messybutfun · 16/01/2023 13:36

Did you do the calculation yourself and ask for x amount or did you ask for 25%?
I can only assume if the former that the total value of your pension reduced between you asking for the withdrawal and the fund being cashed in and this has left you with more than 25% being taken out.

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