Tax on personal pension

zebbydog

I recently took early retirement on the 24/7/09. I am to receive my 1st pension payment of £706 per month on 1/9/09. I have calculated that my tax on this sum will be about £33.75 for the month(my tax code is 659L) However as I have received nothing for the the month of august and the last week of July, they have included an arrears payment of £846. The total tax deducted is £200. When I would have expted it to be in the region of £70. Am I correct in saying that I have been given no tax allowance for August and the last week in July and if so will it automatically be refunded at the end of the tax year or do i have to contact the tax office?

fengirl_2

The July payment has been taxed at 20% because all your tax free allowances will have been given in your final salary payment.
I would expect your August allowances to be given in your September pension payment, but I think the pension provider might well operate your code number on a month 1 basis - I think this is the rule. reason being that most pensioners start getting their state pension at the same time and as this is taxable it needs to be included in your code number.
You need to send a form P161 to your tax office confirming that you dont get a state pension yet so that they can issue a cumulative code to your pension provider.

zebbydog

My code 659 was transferred fom my company to my company pension scheme. The code is correct on the statement which also says period 5. It looks like the tax for September is correct ie £33.75 but all the arrears I was owed have been taxed at the full 20% This is the only income I have apart from savings interest which is taxed at source.

tuggy12

You have been taxed at 20% on the full August arrears because effectively this tax year you will receive 13 months pay. Your tax allowance is spread over 12 months.
This is common when you switch from salary to pension as your salary is normally paid in arrears and a private pension is paid in advance.

molerat

You are allowed to earn £550 per month tax free. Assuming you were taxed correctly by your employer up to period 4 (July). For period 5 (August) you have earned 706 + 846 = 1552 - 550 tax free = 1002 x20% = 200 tax. Your payment for p6 (september) paid on 1st October will be taxed at £31.20.

zebbydog

Thanks folks I think I understand now. So if I am correct the £706 payment for Oct will be less tax of about £33.75?

molerat

Or thereabouts