Pension draw down tax.

[Worndownbylife]

Hello again, friends, and thanks for looking at my post. I have a simple question to ask. If you take drawdown from a DC pension and after the 25% tax-free amount you only draw £12570 (personal allowance) per year, is tax taken off the £12570 and would need to be claimed back from HMRC ? Or is the £12570 paid with no tax taken off ??

It all depends on your tax code at the time.

Generally, if you have no other source of income then your tax code will be sent by hmrc to the pension provider and no tax will be deducted.

Depending on when in the year you start to take taxable cash (such as the money that will taxed at zero rate) hmrc might assume this will be a monthly amount, so if you take £12570 in one go they will put you on an emergency tax code and you will get taxed a lot and have to claim it back. So best option can be to take £1,047 each month.

If you have other sources of income such as a job then your tax code that the pension provider uses will mean that yes they take the tax off.

Arrrr. I understand it now. Thanks for the information.

If you take UFPLS instead of the 25% tax free lump sum, you can take an income of £16800 tax free.

Do you have plans for the Tfls?
If not then UFPLS is normally more tax efficient, assuming no other income.

The trick to avoid being initially taxed is to draw down £1040 a month ( for an income of £12570.