When you make a withdrawal from your pension it usually involves the payment of income tax.
Depending on the amount you withdraw and the way you take it, you could find yourself paying more tax and receiving less money than you expect. If you feel you have overpaid tax, we’ve included some information about how to claim tax back below.
Old Mutual Wealth acts as an agent of HM Revenue and Customs (HMRC) and collects tax from your withdrawals in accordance with their instructions. They tell us what tax code to use but they will not discuss your personal tax liability with us. If you have any issues or queries regarding your tax payments, you will need to contact HMRC directly.
The purpose of this booklet (available shortly) is to help you understand the possible tax due on your pension withdrawal(s), how the tax is taken, and where you can check that the tax is correct.
Understanding tax can be challenging
Tax matters can be complex and everyone’s tax position is different. Please speak to your financial adviser, who can help you understand the implications of taking money from your pension.
- Tax-free lump sum – pension contracts normally allow part of your withdrawal to be paid tax free. This is usually 25% of the value with the remaining 75% being taxable.
- Taxable withdrawals – the amount of tax you pay is calculated in the same way as the income tax paid on employment earnings.
- Amount of tax deducted from your taxable withdrawal – the amount of tax deducted will depend on your tax code, the amount you withdraw and when you withdraw money within the tax year.
- Emergency tax code – there may be times when your pension withdrawal will be taxed using an emergency tax code. This is usually when you first start taking withdrawals from your pension. Using an emergency tax code can result in you paying more tax and receiving less money than you may expect.
- Claiming back tax – there will be times when the amount of tax deducted is more than you may expect. If you are not expecting to receive further pension withdrawals in that tax year, you may be able to reclaim any overpaid tax directly from HMRC. We recommend you contact the HMRC helpline on 0300 200 3300 to discuss in detail your tax liability position, or visit the GOV.UK website to find out more about claiming a tax refund.
Personal Tax Account
For speed and convenience, you could register for an HMRC 'Personal Tax Account'. It will allow you to manage your tax affairs online, quickly and simply, whenever you want. It’s safe, personalised, and brings together all your tax information in one place.
For further information please visit the ‘your personal tax account’ page on the GOV.UK site.