Income Tax on salary and pension

stagey_2

I am over 65 still working and earn £24843. My government pension is £3681 and I have been given a tax code of 299T for 2010/2011. I am continuing to pay 5% into the company scheme.

I have considered this before but am wondering if I would get a better net pay if I deferred my government pension.

thanks for help

fengirl_2

Well, obviously, if you did not receive your state pension then you wouldn't pay tax on it, but then you wouldn't receive the other 80% which is not taxed.

stagey_2

thanks - that does make sense of course! but as I get taxed £1 in £2 over £22900 and with a code of 299T - just wondered.

claretmatt

Something is not quite right. You are entitled to the a personal allowance of £9,490, however as you earnings are £28,534 in total, your personal allowance is reduced by £2,812 and therefore your personal allowance should be £6,678.


There are two possible reasons for the reduction


- you receive taxable benefits from your employer - car, medical insurance
- HMRC have got it wrong



By taking the pension now you are effectively reducing the amount you can receive tax free therefore the question s whether you need the state pension now, because if you don't then deferring could be beneficial

Mikeyorks

claretmatt wrote: »

and therefore your personal allowance should be £6,678.

Quite right.

But it's then reduced by the amount of the State Pension (6678 - 3681 = 2997) ............ leaving a Code of 299.

McKneff

You still pay tax on your state pension whether you take it now or later.

See the rules though about dying while your state pension is deferred and other people inheriting it. The rules are pretty complex. I read there were even rule changes as in Aprl this year.

magpiecottage

McKneff wrote: »

You still pay tax on your state pension whether you take it now or later.

Yes but the point is that he is effectively being taxed twice at the moment because of the loss of age allowance.

I have not looked into what would happen if you took the State Pension and then invested an identical amount of earned income into a personal pension, though.

stagey_2

thank you all for your responses - but as we can see even for my simple affairs it can get complicated ! -