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Ask Your Own Question, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 5147
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
Type Your Tax Question Here... is online now

I currently earn 30,000 per year and I have a pension pot of

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I currently earn 30,000 per year and I have a pension pot of £17,000 which I want to cash in.....but this will take me into 40% bracket?
Will I have to pay 40% tax on the two amounts added together as my yearly earnings or just 40% on the bit that takes me over the limit.
How will this tax be taken this tax year?
I am told that I will go into emergency tax how do I stop this from happening or how do I claim it back asap
Are you able to tell me what my monthly tax will be on the whole amount and also the amount of tax if I keep it under the 40% limit?

Hello and welcome to the site. Thank you for your question.

If you have a pension pot of £17,000 and you wish to cash in, then the first 25% would be tax free and the balance of £12,750 would be treated as income and chargeable to income tax.

This when added to your salary would make your total income (30,000+12,750) £42,750
Personal allowance £10,600, giving you taxable income of (42,750-10,600) £32,150.
First £31,785 would be taxed at 20% = £6,357
next £365 would be taxed at 40% = £146
making your total tax for the year (6,357+146) = £6,503 (monthly equivalent £542).

Personally, as only £365 would be taxed at higher rate, I would not unduly worry about it.
Emergengy tax code would apply to your monthly salary and the cash in of pension pot would be reported as income on your tax return.

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 3 years ago.

Thank you for your help......but just to clarify further.......can you tell me what monthly tax I would pay on just the 30,000 so I can see how much difference it will make to my monthly actual income and secondly is it ever possible to pay the tax as a lump sum to the Inland Revenue for the pension tax requirement in the same year so that my monthly (30,000) income remains the same as it currently is?

Thank you

Thank you for your reply.

On a salary of £30,000 pa your tax for the year would be £3,880 (monthly £323.33).

As far as cashing in of pension pot goes, you would pay tax on the taxable income element when you file your tax return and not as a monthly tax deduction under PAYE (unlike what you would do in the case of your salary).

If you were to cash in your pension pot in this tax year before 5 Apr 2016, tax on it would be due on 31 Jan 2017.

I hope this is helpful.

If you are happy and there are no more issues I will appreciate if you would kindly rate/accept the service I provided to ensure I get credited for it. and 2 other Tax Specialists are ready to help you


I notice you have viewed my latest response to your question about tax implications of cashing in pension pot (JACUSTOMER-51qk6ctl- Last Viewed on 20/04/2015 at 08:22).

Just checking to see if you have any issues relating to your question that I may not have addressed.

Please let me know if I can be of further assistance.

If you are happy and there are no more issues I will appreciate if you would kindly rate/accept the service I provided to ensure I get credited for it.

Customer: replied 3 years ago.


Thank you for your response.

However, I have just read the paperwork for the Pension Cas in and it says the following.....

"where I am taking a lump sum under the rules for uncrystallised funds pension lump sums, I am aware that NFU Mutual will pay 25% tax free and the remainder will be taxed using either my current tax code if supplied, of the emergency tax code on a month one basis. I am also aware that my annual allowance will reduce to £10,000 each year.

I dont understand said before that the tax will not be charged on a month by month basis but will be declared by me at the end of this year and then is repayable in 2017 ......

Please advise

Thank you for your reply.

I was not aware of the fact that the balance will be taxed at source before you get the cash. The balance is regarded as your income and taxed at your marginal rate. My understanding is that the 75% of pension pot would be declared on the tax return and form part of your income for tax calculation.

I am sorry if your pension provider is going to deduct tax at source on the 75% deemed income.

Here is information from the Money Advise Service and look at "Take the whole pot as cash"

The personal allowance for 2015-16 is £10,600 and for tax year 2014-15 was £10,000.
What makes you think your personal allowance will reduce to £10,000 each year?

I hope this is helpful.
I thank you for accepting my answer.

Best wishes.