Pension Tax confusion

rias_2

I have recently started receiving my National pension from November 2006, I also receive a civil service pension. After applying for the national pension I was sent a new tax coding raising the allowance from something like 5439 to 7280 and it was backdated to April this year so I received a small rebate.:j Now I am in receipt of the national pension I have been sent another coding of 2487 which is worked out IE 7280 minus annual pension = 2487. I have spoken to the tax office but am still confused as to why its worked out like this Can anyone clarify?

THE OLD FELLA

clairehi

I dont know for sure but I would hazard a guess that your State Pension is paid without any deductions for tax, although it is taxable income, and HMRC therefore have reduced your tax allowance by the amount of State Pension you receive, to avoid you inadvertently underpaying tax on your total income from other sources such as occupational pensions.

EdInvestor

Two things have happened: you have turned 65 so are eligible for the age allowance, so your personal allowance has gone up to 7280.

And you have started to receive the state pension which is taxable, so they have adjusted your code to include that pension as well as your other one.

rias_2

Thanks for the prompt replies, I understand what you are saying it just sounded an odd way of putting it over, (mind you its perhaps me thats being a bit thick )
As I see it now, because the state pension cannot be taxed directly they reduced my allowance on my civil service pension to accomadate the extra income.

margaretclare

rias wrote:

As I see it now, because the state pension cannot be taxed directly they reduced my allowance on my civil service pension to accommodate the extra income.

It seems an odd way of doing it to me too.

We (that's DH and I) both get state pensions but we also get annuities based on previous careers. And those annuities are taxed at source, taking into account the personal allowance we each receive, which as you say, is £7280. There's also a 10% band, you don't pay all of it at 22%.

HTH

Margaret

seven-day-weekend

This is obviously what has happened to my husband; his tax code for his teachers' pension has gone down to 1721 because of his IB and an underpayment of £610.

I've rung the tax office twice to have them explain it - I understood enough to understand it was right, but couldn't explain it to my husband.

Thanks!

seven-day-weekend

Actually, I still don't understand - why don't they add all your income together and then see how much it is over your personal allowance?

In other words, assuming my husband's income from all sources is £9500 a year and his personal allowance 5035, why don't they just tax him on 9500 - 5035 = 4465?

He pays about £80 a month at the moment - is that about right? (He also had an underpayment of tax of £134.40).

Answers in words of one syllable please!


Edited to adjust amount of underpayment).

krisskross

on the first £2000 of taxable income he will paY 10% so about £200 for the year , the remainder will be taxed at 22%, so that is £2465 @22% = £542, thus giving a tax liability for the year of approx £742. Does that sound about right?

edit: the previous underpayment will mean he is paying extra this tax year, his code number has no doubt been adjusted to claw it back. That is a big underpayment, if they are taking it back over 1 year it will be £50 a month. IB is taxable income unfortunately, and as your husband is under 65 it will wipe out his tax free allowances. Didn't quite understand his code number. Is that an 'L' at the end rather than a '1'?

krisskross

SDW, have you made sure any savings are in your name to avoid paying tax on them also? I gather from previous posts that you have no income so do not use your tax free allowance.

seven-day-weekend

krisskross wrote:

on the first £2000 of taxable income he will paY 10% so about £200 for the year , the remainder will be taxed at 22%, so that is £2465 @22% = £542, thus giving a tax liability for the year of approx £742. Does that sound about right?

edit: the previous underpayment will mean he is paying extra this tax year, his code number has no doubt been adjusted to claw it back. That is a big underpayment, if they are taking it back over 1 year it will be £50 a month. IB is taxable income unfortunately, and as your husband is under 65 it will wipe out his tax free allowances. Didn't quite understand his code number. Is that an 'L' at the end rather than a '1'?

Sorry....172T

And the underpayment is £134.40....senior moment!

Thanks for your help.

seven-day-weekend

krisskross wrote:

SDW, have you made sure any savings are in your name to avoid paying tax on them also? I gather from previous posts that you have no income so do not use your tax free allowance.

Unfortunately, does not apply as I am not UK resident. (So Lloyds TSB inform me, anyway).

Actually, I'll ring the tax office and ask.

Most of our savings are in my name apart from his ISA (which he can't contribute to anyway, as he is non-resident in the UK), and his Monthly Saver at Lloyds TSB, which we might change to my name if the tax office say differently.