Income tax on Pension Sharing Order

What rate of tax will be deducted by pensions manager upon withdrawing a SIPP received under a PSO?

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£50,000 received under a Pension Sharing Order which has been transferred into a SIPP.  The court order stipulates that the mortgage on the former marital home is to be paid off and the title to be put in my clients sole name.  The full £50,000 is needed to facilitate this and to meet the court order. However, I'm assuming the SIPP management company will deduct 20% or 40% tax despite my client removing the money from the SIPP within days of receipt to pay off the mortgage via a solicitor.  

What rate of income tax is likely to be deducted upon removal of funds from the SIPP? They have no other taxable earnings in this tax year. The client will be taking 25% tax free. Is there anyway to stop tax being deducted at source and dealt with through client's tax return? Or failing that, 20% rate rather than higher rate.

A further complication is that the client has outstanding income tax debt with HMRC from previous years (last 2 years no liability as just on benefits due to disability).  I assume HMRC will automatically offset the tax refund due this year against previous tax owed?  Are there any exceptions to this with Pension Sharing Orders?

My client needs full amount to pay off the mortgage, then re-mortgage as sole owner, and use some of the re-mortgage capital to pay off HMRC debt.  Does anyone have experience of whether HMRC would entertain delaying recovery?  I am aware that HMRC's responsibility and priority is to get taxes paid and not to 'help' facilitate a client meeting a court order.  I'm just wondering if anyone has any experience of exceptions with Pension Sharing Orders or negotiating not offsetting tax deducted at source against previous periods tax due.

Thanks in advance.


Replies (3)

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By rmillaree
02nd Feb 2024 09:39

Is there anyway to stop tax being deducted at source and dealt with through client's tax return? Or failing that, 20% rate rather than higher rate.

if you take small initial taxable sum rather than full monty - then hmrc will allocate tax code in same manner as any other employment - if you have full allowances available you could ring up an request they be allocated against that income source on cumulative basis. Then tax would approach correct level - albeit if its drawn in tax month 11 not quite.

I am presumig its normal tax rate on withdrawals not silly excess tax rate for drawing before you reach age where you can draw.

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By Tax Dragon
02nd Feb 2024 10:07

You sound punchdrunk. Maybe a chat with someone would help? Citizens Advice? National Debtline? StepChange?

If the £50,000 has literally only just gone into the SIPP, you might be able to ask for it to be refunded.

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Replying to Tax Dragon:
By Tax Dragon
02nd Feb 2024 10:31

Sorry was somehow managing to ignore the context even though it was writ large. Refund sounds unlikely; talking to the trustees sounds sensible.

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