Tax Rebate

[JBW1366]

I cashed in a DC pension last year - and in doing so I paid £9000-ish in tax. The reason I did this is that at 55 I didn't want to start getting my DB scheme - where the longer I leave the more I get both in pension per month and the 25% tax free lump sum - so I decided to cash in the DC scheme. So my earning are £21500 per annum - so consequently I would've paid too much tax including that £9k.

So am i right in thinking I can claim this back via a tax return once I get my P60 for the tax year 2021/2022? if so is it easy to do a tax return and which one do i do? just had a look and the forms look quite complicated.Am i likely to receive the whole 9K back?

Any help as always gratefully received

[bobbinwales]

Hard to say. Depends on any other income on top of your lumpsum amount (and whether you took your full 25% tax free bit). Depends how the 9k was calculated- seems alot, was tha because your total income with lump sum took you into higher tax band. Anyway just wait until after 6th April. Maybe look on your online tax account (or setup access if your not on at the mo) as they may say they owe your tax you overpaid..... or just ring up if your happy hanging on for a while

[ubasses]

Not sure if you are taking the pension but are still working or not.
HMRC will get round to refunding eventually at the end of the tax year.
In my experience I usually get a small one but not until towards the end of the year.
You an pre-empt by completing P50Z if you are no longer working or P53Z if you are still working.

[Hymie]

Regardless of how much money you received on top of the 25% tax free lump sum, you would pay 20% tax on it up to the higher rate tax point (£50,270) – any money above this figure would be taxed at 40%.

So unless you have no income at all, you should have limited the pension amount you took out (ignoring the 25% tax free amount) to £50,270 - £21,500 = £28,770; only paying 20% tax on the amount, then take the remainder in the following tax year, paying 20% tax.

But it is too late to undo what is done now.

I have heard of cases where the tax office considers this one off income increase to be something that will be regular going forward, and it takes a bit of time to sort things out.

In your situation, if it proves to be that you have paid too much tax, I would expect them to adjust your tax code such that you get any money owed back through not paying so much tax in the next tax year.

[Buenchico]

>>> Paper tax return forms can look incredibly complicated because they have to ask loads of questions that won't apply to everyone. If you do it online, answering one question tends to screen out lots of other questions as you go along. (For example, if you tell the computer that you're male and that you're not a share fisherman , you won't then see any questions about pregnancy benefits or income from share-fishing schemes. The paper forms, on the other hand, have to includes lots of unnecessary questions as you go along, because the form doesn't have any knowledge of your answers to the earlier questions).

So I STRONGLY recommend that you submit your tax return online, rather than in a paper format. I can do mine in well under 5 minutes that way, whereas it used to take me ages on paper.

[JBW1366]

I think I may have confused things with my question.

I had a Direct Contribution scheme with £43K which I cashed in - I took 25% tax free and the remainder I paid tax on around £9000.00 which I was advised I could claim back as I would've paid too much tax in the year as I earn £21K.

I closed this scheme and received with the tax free 25% circa £32K. I am not drawing a monthly pension on this.

So will I get the Tax refund automatically or is it best to fill in a tax return - the company I used to deal with my pension - cash in supplied me with all the necessary paperwork and assured me I could / would get this back - I was looking forwarded to getting another lump sum tbh.

Thanks again for helping

I also have a DB scheme which I haven't touched - I could've as I am now 55, but made sense to leave this as a final salary scheme and has a lot more money and as I am working I didn't want to start getting the pension from this - yet as I don't need it.

[ubasses]

Yes they will send the money back automatically but you are unlikely to see it until near the end of this year or early next year.
If you use one of the forms mentioned in my previous post that should get you an earlier refund. It depends on your total income as at 5 April 2022, including the £9000 to how much of it you will see.

[ubasses]

Sorry that should have read, including the amount you paid the £9000 tax on.

[Hymie]

Based on your salary of £21.5k and cashing in a total pension of circa £43k will have the following tax implications (in round numbers).

Tax free, you will have received £11k.

On the remaining £32k, you will pay 20% tax on £29k of it [£5.8k] (taking your taxable income (salary + pension) to £50k); and 40% on the remaining £3k [£1.2k] (income above £50k).

Therefore total tax payable on the pension income should be circa £7k – so it looks like you overpaid around £2k in tax. To correct for this in the next tax year you should be paying virtually no tax on your salary.

By taking the pension pot over two tax years, you could have saved yourself around £600 in tax (paying 20% tax on the £3k, rather than 40%).

[Hymie]

A final thought, if the £9k tax included the tax on your salary – then you have paid the correct amount of tax for the year.