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Where Taxpayers and Advisers Meet

Emergency Tax and a UFPLS Payment

R1200GS
Posts: 14
Joined: Sat Jun 11, 2016 2:46 pm

Emergency Tax and a UFPLS Payment

Postby R1200GS » Thu Jun 04, 2020 10:11 pm

Can someone clear the fog of this income tax/ pension payment question please? I am a retired person who has recently submitted a claim for the cashing-in of one of my pension policies. This has been done as a UFPLS payment and I have received both the net figure from the provider and have subsequently submitted a tax refund claim to HMRC, which has been successful. I cannot understand the reasoning behind the amounts that have been deducted and provided to me and when I asked the pension provider to explain, they have suggested that the calculations and differences in my figures is down to the fact that they have to use an emergency tax code to work out the tax that they deduct at source. They have suggested that I look at the free calculators that are available online and indeed the income tax figure that the pension provider has deducted accords with these online calculators; but how?!!
My understanding, which is clearly wrong, was that out of my UFPLS payment, 25% of it would be tax free, 75% of it would be taxed and the taxable bit would be liable to 20% income tax. As I am below the current personal allowance threshold of £12,500, I would be eligible to claim all of the tax back, which I have, but the figures are odd to me!
The figures that I thought would be applicable in this case are: UFPLS gross cash in claim of £4447, 25% tax free = £1111.75, 75% taxable = 3335.25 Tax to be deducted = (£3335.25 x 20%) = £667.05
However, the figures that the pension provider has used are: UFPLS gross cash in claim of £4447, tax free = £1043, Basic rate tax = £2293 Tax to be deducted = (£2293 x 20%) = £458.60 These figures are born out if I enter the £4447 figure in The Prudential's Emergency Tax Tool (https://www.pru.co.uk/xpf_calculators/emergency-tax-tool/), and others I have used. I received a net payment of £3988, which when added to the tax deducted gets to £4447, which I understand.
What confuses me is:
1. if my pension provider has to use an emergency tax code, why is their figure for income tax lower than mine? I would have thought that my calculation assumes that all of the taxable element is liable to income tax at the basic rate and a larger tax figure arrived at.
2. where does the £1043 'tax free' figure come from? I can see that £1043 + £2293 = £3336 but why is there effectively a second tax free element contained in what I understood was going to be taxed in its entirety - i.e. 100% of the taxable figure of £3336?
3. clearly there are implications for me where the emergency tax code comes into effect, but given that in the previous tax year I paid no income tax and therefore have a tax code of 1250L (I think), I don't quite see why I have not seen £667.05 income tax deducted

Sorry if all this seems trivial, I just cannot find a simple answer to this.
Thank you for your help.
Chris

bd6759
Posts: 3297
Joined: Sat Feb 01, 2014 3:26 pm

Re: Emergency Tax and a UFPLS Payment

Postby bd6759 » Fri Jun 05, 2020 12:55 pm

£1043 is your tax free allowance. It is 1/12th of the annual £12500. The annual allowance is given proportionally each pay period.

R1200GS
Posts: 14
Joined: Sat Jun 11, 2016 2:46 pm

Re: Emergency Tax and a UFPLS Payment

Postby R1200GS » Fri Jun 05, 2020 1:38 pm

Thank you bd6759 for your response.
Can you tell me:
1. if this 'tax free allowance' is only applicable where an emergency tax code is used by the provider?
2. would I be correct in my assumption that, because this is my first UFPLS payment and all earlier payments that I have received have been done so as three small, pension, lump sum payments, (thereby using up my total allowance), that the tax free allowance comes into effect, as all previous payments have not had the tax free allowance factored in? The three small lump sum pension payments that I have received to date had 20% income tax deducted on the whole of the taxable part, which is what I was expecting this time.
3. where would I get the information on the tax free allowance? I've searched for it on the Gov.uk web site, but can't find it.

Many thanks for taking the time to respond.
Chris

bd6759
Posts: 3297
Joined: Sat Feb 01, 2014 3:26 pm

Re: Emergency Tax and a UFPLS Payment

Postby bd6759 » Fri Jun 05, 2020 9:19 pm

You mentioned the personal allowance of £12500 in your first post, so you must know about it.

Try here: https://www.gov.uk/income-tax-rates

The Energency tax code means different things to different people. If your code is 1250L, then that is the correct code. ”emergency” basis means it is not operated in a cumulative way, but that doesn’t mean you will pay too much.

Income tax is an annual tax . The year starts on 5 April. Anything you earned before then relayed to a different tax year.

I don’t know enough about you and your circumstances to understand or explain previous tax deductions.


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