over 65 age allowance

David_Aston

Having just become eligible for my pension, in the two months since I was 65 I have received three different notices of coding. It does appear that I am fortunate enough to be close to losing some of this allowance because of current income. Although in fact the Revenue, at this time seem to be crediting me with a couple of grand more than I know of! My question is, in trying to work out what I get, am I supposed to gross everything up? If so, is it at 20 percent?
Thanks to anyone who can throw some light.

trevormax

The age related allowance for 65 and over is 9030 for 08-09 and can be reduced down to a minimum of 6035 based on your income. When your gross income (less any gross gift aid payments) reaches £21,800, your age related allowance is reduced by £1 for every £2 over. So if it was £22,000 your allowance is reduced by 100 (22,000 - 21,800 = 200 / 2 = 100).

The gross income includes all pensions, bank interest, earnings, dividends etc. They will also code your state pension at this time which can not be taxed at source. It is possible when they issued your new code, they based it on your annual state pension and not your actual state pension (i've seen it happen before).

Best thing to do is to figure out what your annual income for this year should be and give them a call to discuss your code.

David_Aston

Hello trevormax. Thanks for a quick response. In fact, I have given, hopefully, verse and chapter to them in a letter sent a few days back. Can I ask what you mean by this please?
"It is possible when they issued your new code, they based it on your annual state pension and not your actual state pension (i've seen it happen before)".
What is the difference?
Thanks again.

Mikeyorks

David_Aston wrote: »

What is the difference?

Potentially considerable! If (ease of arithmetic) your State Pension (SP) is £100pw then the annual figure is £5200. Whereas the State Pension you will actually be eligible for in 08-09 is closer ("in the two months") to (20 x £100) £2000?

If (have you completed the 161 they should have issued) they have restricted your coding by the full year SP entitlement of £5200 instead of the correct start-up figure of circa £2000 ? .... that is what the reference was to.

Bear in mind the pension is taxable from the entitlement date (as opposed to the more usual payment date for income pertaining to PAYE) .... so they will code out from your birthday and not the first payment date. Bit academic if your State Pension is paid weekly - less academic if 4 weekly - and makes a fundamental difference in the start up year if, unusually, you've opted for 13 weekly?

trevormax

Mikeyorks wrote: »

Potentially considerable! If (ease of arithmetic) your State Pension (SP) is £100pw then the annual figure is £5200. Whereas the State Pension you will actually be eligible for in 08-09 is closer ("in the two months") to (20 x £100) £2000?

If (have you completed the 161 they should have issued) they have restricted your coding by the full year SP entitlement of £5200 instead of the correct start-up figure of circa £2000 ? .... that is what the reference was to.

Bear in mind the pension is taxable from the entitlement date (as opposed to the more usual payment date for income pertaining to PAYE) .... so they will code out from your birthday and not the first payment date. Bit academic if your State Pension is paid weekly - less academic if 4 weekly - and makes a fundamental difference in the start up year if, unusually, you've opted for 13 weekly?

Spot on what Mikeyorks has said. Its not a common error but it does happen sometimes

David_Aston

Mikeyorkes, I have just thanked you for pointing out to us all, the antiquity of a post from earlier, and now you have come to my aid!
I will have to read over your explanation a few dozen times, at least, but am grateful for it.
trevormax, thankyou for your further comment.

David_Aston

To both of you gentlemen. My wife has just come up and read your explanation. And is patiently taking me through it even now!!!

Mikeyorks

David_Aston wrote: »

To both of you gentlemen. My wife has just come up and read your explanation. And is patiently taking me through it even now!!!

Excellent - trust she does a good job.

In my experience HMRC aren't good at getting the Code number correct (both accuracy and timeousness) in the start up year of a State Pension. So check it very carefully. Also - in the start up year - the amount coded out will be the pension accrued (ie from your birthday) - not the (lesser) amount paid. (In subsequent years the two sums will co-incide).

If the accrual figure significantly disadvantages you .... then it's worth bearing in mind a piece of data on the HMRC system at EIM74101 - relevant bit as follows:

The amount of taxable pension income is determined by reference to the relevant Chapter of ITEPA 2003 that applies to the pension or annuity in question. In many cases, the taxable pension income for a tax year is the amount accruing in that year irrespective of when any amount is actually paid. Where accruals basis applies, the pension, etc. should be assessed on the amounts that the pensioner is entitled to in the tax year

Pensioners are often content to pay income tax on the amount received in a year, as, in most years the amounts accruing and received are similar. However, it is possible in certain circumstances for the amounts to be different. If a taxpayer requests the statutory basis this should be accepted.

The very final sentence is the most relevant ..... i.e if you object to accruals basis, they will revise the first year code to only code out the sum of SP you are actually paid to 5.4.09.

David_Aston

Just off to get the wife up again mike. You surely know your stuff!
Dare I ask if you can comment on my initial pondering over grossing or netting totals I give to hmrc? We have a Halifax private investment plan which pays quarterly income. We are told the income is taxed without further liability, but wonder if hmrc expect us to add the paid tax onto these payments, to gross them up so to speak?

artha

When you are on a pension including pre state retirement age occupational pension do you get a P60 or equivalent to show how much you have "earned" and tax paid?

David_Aston

Hello artha
From experience, I get a P60 for my BP pension. Just in the process of starting to receive my State pension, so don't know about that.