Tax code very low

Martyn_H

Please help.

Despite verbal assurances from HMRC, I'm very suspicious of the new tax code allocated to my mother.

Some details:

Age: 75
Deceased spouses' company pension: £5900 pa gross
Her state pension: £7384

According to HMRC's reasoning, mum's personal allowance is £9640 less state pension of £7384 leaves £2256 = tax code 225Y.

Is this correct? It seems odd to me that I can earn 25K and have a tax code of 659L, but perhaps pensioners are treated differently.

I'd be very grateful for advice given.

scoobs02

Tax code is correct, as state pension is taxable. They give additional person allowances for over 75.

dunstonh

Seems correct.

It seems odd to me that I can earn 25K and have a tax code of 659L

State pension is paid gross so it is deducted from the tax code. Your earnings are paid net of ta.

Martyn_H

Thanks very much for your replies. Previously HMRC had my mum on an emergency tax code. Will they automatically 'reimburse' her for the overpaid tax?

scoobs02

No will not be done automatically. She should send her P60 from pension together with the full amount of state pension she rec'd in 2009/10. If she has bank/building soc int or divideneds and could possibly due a refund then she needs to complete form R40 for 2009/10.

Batchy

She will only be paying tax on 3650 x 20% with no NI to pay as she is already retired, so say 700 squidlers... :-)

so out of income of 13284 = 700 tax to pay (ish) and effective rate of around 5.2% on gross income... seems pretty good to me. :-)

jem16

Martyn_H wrote: »

Thanks very much for your replies. Previously HMRC had my mum on an emergency tax code. Will they automatically 'reimburse' her for the overpaid tax?

It depends on when this new code is to be used. If it will be used before April 5th then yes the rebate will happen automatically.

If this is a new tax code to be used after April 6th then she will have to apply for a refund as scoobs02 mentioned.

Martyn_H

Batchy...not sure where you got the figure of £3650.

jem16...the new tax code was issued earlier this year Feb?

jem16

Martyn_H wrote: »

Batchy...not sure where you got the figure of £3650.

State pension is paid gross.

Company pension is £5900. Tax code is 225Y so she has a tax-free allowance of £2256 as you said earlier. £5900 - £2256 leaves £3644 that she will pay tax on. Or put another way - total income of £13284 minus personal allowance of £9640 equals £3644.

jem16...the new tax code was issued earlier this year Feb?

Yes but was it to be used right away or was it issued for the new tax year? What code did her last pension payment use?

bigheadxx

Martyn_H wrote: »

Please help.

Despite verbal assurances from HMRC, I'm very suspicious of the new tax code allocated to my mother.

Some details:

Age: 75
Deceased spouses' company pension: £5900 pa gross
Her state pension: £7384

According to HMRC's reasoning, mum's personal allowance is £9640 less state pension of £7384 leaves £2256 = tax code 225Y.

Is this correct? It seems odd to me that I can earn 25K and have a tax code of 659L, but perhaps pensioners are treated differently.

I'd be very grateful for advice given.

Tax will be deducted from the personal pension only as there is no mechanism for income tax to be deducted from the State Pension directly.

A total income of £13284
Personal allowance £9640

Tax payable is 20% of £3644=£728

Which equates to £2256 of the personal pension being paid tax free
£5900-£2256=£3644
Tax payable is 20% of £3644=£728

Martyn_H

Martyn_H wrote: »

Batchy...not sure where you got the figure of £3650.

jem16...the new tax code was issued earlier this year Feb?

I'll have to check with mum and get back to you.