Pension UK: Money Talk reader asks whether tax needs to be paid on pension income | Personal Finance | Finance

“Initially the pension provider will usually apply an emergency tax code to the taxable income and will treat the first instalment as though it is the first of a monthly series of payments.

“For example, a one off £1,200 is taxed as though £14,400 will be paid out in the tax year, with tax deducted from the 75 percent which is not tax free so that £180 tax would be deducted at source, leaving a payment of £1,020.

“The taxpayer can claim this back by completing a self-assessment tax return at the end of the tax year or by completing form P55 or P50Z to make a standalone claim.

“If total taxable income does not exceed the Personal Allowance a revised tax code may be applied by the pension provider in subsequent years, so that all may be paid without deduction of tax.

“Those who withdraw more than the tax free cash sum from a pension pot which is over £10,000 in value when they start withdrawals, must be aware that their future pension savings will be restricted to no more than £4,000 per year, including any employer funded payments. Anything paid in above this is subject to Income Tax.





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