Paying tax on two pensions?

TravellingAbuela

My OH retired last November on his 60th birthday. He receives a pension from his employers of £6,400.20 per annum. He also receives a small payment through the Prudential of an AVC of £553.20 per annum.

He has had 3 tax code changes already - his first being BR and the latest being 616L. This is applied to the works pension. However he is still paying tax at Basic Rate (20%?) on the AVC.

Is it the norm that BR tax is taken from a second pension and, if so, how likely is he to get a refund of overpaid tax at the end of the tax year?

(Our biggest problem is how to get the best return on his "lump sum" - but that's another story!!!)

Any advice on the tax appreciated.

terryw

Ask the tax office to deduct the amount of his small pension from his allowances and to issue a no tax code to the small pension payer.

terryw

EdInvestor

TravellingAbuela wrote: »

He has had 3 tax code changes already - his first being BR and the latest being 616L. This is applied to the works pension. However he is still paying tax at Basic Rate (20%?) on the AVC.

IME the Revenue applies all allowances to your main pension and taxes others at basic rate.The state pension is paid gross of course but will be factored into the allowance in due course.They normally shower you with new tax codes at the start due to their silly system where no individual inspector ever sees your full file. They may not have reached their final arrangment yet if you have only had three.

chesky369

Don't hold your breath, you'll receive more changes later on in the year. Then you'll get a letter, telling you they probably want you to fill in a tax assessment. Then, when you've forgotten that, weeks later, the tax form will arrive. Then you'll get an even newer tax coding, just weeks before the new tax year. Why they can't work out a better system, I'll never know.

TravellingAbuela

So it sounds like it isn't yet sorted some 3 months on! I turned 60 a couple of years ago and it sounds like I was exceptionally lucky in my dealings with the tax people! I didn't have any problems! Thanks all for your advice.

Be_Happy

OH and I are both in the position of having several pensions. Our tax is treated differently. OH pays tax on largest pension, with state OAP shown as a deduction on Coding Notice. His other pensions are not mentioned on this Coding Notice and are taxed at basic rate.

In my case last year I had a different tax code for each pension provider to use and each one was treated separately. This year I pay tax on my main pension, but other two are totalled and shown as a deduction on my coding notice for the largest pension. (I've deferred state OAP)

Must be based on the total amount of pension you get as my pensions are too small to pay tax on, but OH pays quite a bit of tax.

When my pensions first started there was complete chaos. Not only did I have 3 different tax codes, but also 3 different tax offices were writing to me. It took some time to sort this out, but it seems to be working well now.

One money saving point to note here - I called into our local Inland Revenue Office to explain the problem and was shown into a small room with a phone and given the number to call to discuss the problem, thus saving cost of 0845 calls.

TravellingAbuela

My nerves wouldn't stand working for the Inland Revenue!!!! Surely there could be a better system in place!

Newly_retired

You think this is complicated - not a patch on Pension Credit or Child Tax Credit! The whole HMRC system needs a complete overhaul IMO.
I too had 3 tax codes in quick succession when I first retired, then got a BR code for my AVC /annuity. Just got my new tax code for next year. Not sure how to work out if it is correct - I think it probably is, but I don't really know for sure.

sarflee

Tax free personal allowances for a person under 65 is currently £6035pa. If paid monthly they allow 1/12th each month, ie £503pm. Anything over this amount is taxed at the Basic Rate (BR) of 20%. I am assuming that your OH recieved income up until his retirement in November, therefore it would appear that taxing his second pension at 20% is correct.

From 6 April 2009, the tax free allowance will increase to, I think, £6475pa. It will probably be assumed that the main pension will increase slightly therefore again it would be correct for the 2nd pension to be taxed at basic rate. I have not factored in a state pension because men do not receive this until they are 65.

If you do find that OH total income for the tax year is under £6588 - Personal allowances plus taxed second pension - a rebate is probable.

EdInvestor

Be_Happy wrote: »

When my pensions first started there was complete chaos. Not only did I have 3 different tax codes, but also 3 different tax offices were writing to me.

One money saving point to note here - I called into our local Inland Revenue Office to explain the problem and was shown into a small room with a phone and given the number to call to discuss the problem, thus saving cost of 0845 calls.

I tried this too, but it led to even more chaos! You would think no-one had ever retired with more than one pension ever before.:rolleyes:

The basic approach seems to be that where you have several sources of income, your tax affairs will be dealt with by the tax office pertaining to the company or insurer paying your largest pension.So don't bother communicating with other tax offices, it's a waste of time.