Tax on pension withdrawals
Concerns have been raised over the taxation of lump sum pension fund withdrawals over and above the 25% tax-free allowance. This is because unless the planholder supplies their pension provider with a P45 form obtained from their employer, HM Revenue and Customs will apply emergency coding which will assume payments of the same magnitude will continue to be made on a regular basis and tax calculated accordingly.
Any overpaid tax would usually be reclaimed subsequently through self-assessment or PAYE, the good news is HMRC has now issued a new form P55 which should ensure repayment of any tax due is made within 5 working weeks. There has been confusion over the wording of this form, however it has been established that the form can be used when more than one lump sum withdrawal is made during the course of a year.
As always with this type of financial decision you should consult a financial adviser to ensure you are fully informed and be in a better position to manage any income tax payable.
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