Pension tax in year of retirement

jem16

feesarefare wrote: »

If you say so

I don't - HMRC does though.

http://www.hmrc.gov.uk/incometax/emergency-code.htm

http://www.hmrc.gov.uk/incometax/check-multiple-codes.htm

Loughton_Monkey

Before 5th April, you should calculate your total income for this tax year. Estimate your tax bill. Then consider whether or not you should reduce it (or at the very least the 40% part) by paying into another pension. Some of us are in retirement, drawing a pension, but still pay into a stakeholder up to £3,600 simply for the 25% tax relief.

You have a 'window' in which you can save more - equivalent to all the tax you have paid this tax year. And you could cash it in almost immediately (next tax year -if you wanted) taking the 25% tax free lump sum and the rest as a small addition to your income (at only 25% tax)

Domain.Rider

jem16 wrote: »

HMRC have applied a D0 code to take 40% off his secondary income as opposed to a BR code as over the course of the year the OP is a higher rate taxpayer. The problem is that the OP feels that this will take off too much tax at 40%.

That's right, it's a D0 code for the secondary income and (so far) 20% for the main pension - although I haven't yet had the code for that, and I suspect it may change...

Domain.Rider

jem16 wrote: »

What tax code has been applied to your main pension income? If it's 647L it may be possible for HMRC to adjust your tax code so that more tax is taken off the main income and BR is applied to the secondary pension. That way "may" work out better than having 40% tax taken off the whole secondary income resulting in you paying too much tax and having to claim it back next April.

http://www.hmrc.gov.uk/incometax/check-multiple-codes.htm

It really depends on figures. What are they for each section - salary, main pension and AVC?

My salary was 578L (~£65,000pa), the main pension is 647L (~£13,500pa), and the secondary is D0 (~£9,600pa).

Thanks for the link, I'll have a read...

Domain.Rider

Loughton_Monkey wrote: »

Before 5th April, you should calculate your total income for this tax year. Estimate your tax bill. Then consider whether or not you should reduce it (or at the very least the 40% part) by paying into another pension. Some of us are in retirement, drawing a pension, but still pay into a stakeholder up to £3,600 simply for the 25% tax relief.

You have a 'window' in which you can save more - equivalent to all the tax you have paid this tax year. And you could cash it in almost immediately (next tax year -if you wanted) taking the 25% tax free lump sum and the rest as a small addition to your income (at only 25% tax)

OK, thanks. I don't know where I'd get money to pay into another pension, but I'll investigate.

zygurat789

Salary April -July £65k/3 21667
BIK max 997
Pensions £23100 X2/3 15400
Total 38064
Therefore no higher rate liability.
Do HMRC know you have ceased your job?

jem16

Domain.Rider wrote: »

That's right, it's a D0 code for the secondary income and (so far) 20% for the main pension - although I haven't yet had the code for that, and I suspect it may change...

Domain.Rider wrote: »

My salary was 578L (~£65,000pa), the main pension is 647L (~£13,500pa), and the secondary is D0 (~£9,600pa).

Thanks for the link, I'll have a read...

You are saying 20% for the main pension and that you don't have a code for that and then you say it's 647L for the main pension - which is it, BR or 647L?

The pa figures won't really help. What do you expect your total income to be and how much of that will be the secondary pension?

From my rough figures I got to around £37k so I can't see where you are in higher rate tax.

Domain.Rider

zygurat789 wrote: »

Salary April -July £65k/3 21667
BIK max 997
Pensions £23100 X2/3 15400
Total 38064
Therefore no higher rate liability.
Do HMRC know you have ceased your job?

I rang the tax office and told them I'd retired, and they said they knew - they'd been notified by my old employer.

Now I'm really confused... the higher tax band threshold is £34,700, and my total income will be over that in this tax year, so why no higher rate liability?

jem16

Domain.Rider wrote: »

Now I'm really confused... the higher tax band threshold is £34,700, and my total income will be over that in this tax year, so why no higher rate liability?

The higher rate tax threshold is £37,400 and that is taxable income. You also have to add the personal allowance of £6475 to that making £43,875 before you pay higher rate tax.

You seem to be well below that. Are the figures by zygurat correct?

Domain.Rider

zygurat789 wrote: »

Salary April -July £65k/3 21667
BIK max 997
Pensions £23100 X2/3 15400
Total 38064
Therefore no higher rate liability.
Do HMRC know you have ceased your job?

I rang the tax office and told them I'd retired, and they said they knew - they'd been notified by my old employer.

Now I'm really confused... the higher tax band threshold is £34,700, and my total income will be over that in this tax year, so why no higher rate liability?

Not entirely sure why the main pension is taxed at 20% and the secondary at 40%, either. If it all counts as taxable income, why are they taxed differently?