Pensions and Tax - Please Help!!

Football_Mad

My mum has just given me a load of pensions paperwork to check over for her, but it’s well over my head and I wondered if anyone here could help.

She’s 73, gets a state pension and a small private pension. Her personal allowance for 07-08 was £ [FONT=&quot]7550[/FONT] and, as far as I can tell, her state pension isn’t being taxed. After her state pension she still has £ [FONT=&quot]1230 [/FONT]of personal allowance left. However, according to her private pension’s P60 her ‘Taxable Earnings’ are showing up as just £5 less than her total private pension. Her tax code 123P appears correctly on the private pension’s P60 (and has done so in previous years when the tax code was slightly different) but there doesn’t seem to be any recognition of the fact that there’s the £1230 of personal allowance that shouldn’t be taxed at all. So, her P60 appears to show that she’s being taxed on the full amount minus £5 rather than the full amount minus £1230. Does this make sense to anyone? Am I missing something obvious?

[FONT=&quot]I’d be really grateful if anyone has any suggestions![/FONT]

CLAPTON

how much was her state pension
how much was her private pension
how much tax did she pay on her private pension
the tax code on her private pension was 123P?

sarflee

Has your mother actually been taxed on her private pension? Taxable pay means this is the amount liable to tax before any personal allowances have been used against the amount.

jennifernil

the code of 123 would presumably give her £1230 allowances to be set against her private pension.

margaretclare

Code of 123 means £1230 income which isn't taxed. Is her 'small private pension' more, or less, than this amount? Is it a private pension which increases each year, or not?

HMRC send out clear explanatory leaflets with the annual Notice of Coding.

Debt_Free_Chick

Her State Pension is paid without deduction of income tax. However, it IS taxable and any tax due on it will be collected by deduction from her private pension.

As previously suggested, if you post the amounts we can advise further.

Football_Mad

Thanks for your replies. Yes, she has £1230 of personal allowance left before tax after her state pension; her state pension was £6320.
Her private pension was £4472.51 for the year 2007-08. The 'Taxable Earnings' box on the front of her P60 for that pension says £4467.51, and the income tax she paid was £442.56.
Hope this makes things clearer!

Mikeyorks

Football_Mad wrote: »

Hope this makes things clearer!

Yes. And the tax deducted looks spot on. The restriction of £6320 from her PA takes care of the tax potentially due on the State Pension.

For the rest :

Taxable earning on private pension = £4467
Less residue of PA = £1230
Taxable = £3237

First £2230 @ 10% = £223
Balance £1007 @ 22% = £221.54
Total due = £444.54

..... mild profit made of circa £2

For subsequent years ... note her PA has increased substantially from 08-09 and less tax, overall is likely to be due. If she suffers 20% deduction of tax for any Savings interest ... possibly a bit of mitigation due there also? As she will likely have part of the new 10% Savings rate at her disposal.

Football_Mad

Thanks everyone for replying. It's made things a lot clearer to understand so many thanks :T