Taking Income in Drawdown

Have you been contacted about drawdown payments? We have been made aware of a number of organisations taking advantage of people who have recently taken a substantial amount of Taxable Income within one tax year, where no income has previously been taken.

In these circumstances HMRC will apply an emergency tax code.

What does that mean?

HMRC can deduct almost any amount of tax from drawdown payments because of assumptions they make about income they think you will receive in that tax year, and usually assume way too much. HMRC issue the pension provider with an emergency tax code and assume you will take similar drawdown amounts in subsequent months. Say you draw down £20,000, HMRC assume £20,000 x 12 and an annual income of £240,000, so tax at higher and additional rates making £7,275 tax to pay which is a potential overcharge of up to £5,789. 

A number of firms have been advertising on Facebook and other social media newsfeeds advising that they act as a tax agent and say they will reclaim the excess tax you have paid for the princely sum of 30% plus VAT of the tax refund you receive.

They certainly can help you complete the forms. No third party has the ability to expedite this payment for you!

In any event

HMRC will obviously correct any over payment at the end of the tax year. Or, you can request an “in year” adjustment online or by completing a HMRC form. Either way you will receive the refund and your personal tax will be corrected. It may take a little time, but that is dependent on HMRC processing times.

At YorWealth we will always discuss drawdown payments with our clients. We ensure they take the correct action for any tax reclaim.

If this raises any questions, then please do not hesitate to contact us. Call us on 01904 623888 or email us at contactus@yorwealth.co.uk.

Taxation advice is not regulated by the Financial Conduct Authority.

Categories: Updates