Work, pension & tax

Rack_Failure

Hi
I'm about to stop for early retirement aged 57 with £14k pension. I'm also fortunate enough to start a full time, easier, job paying £17k. It will be paye for tax on £17k but how will I be taxed on my pension? This is the bit I'm not sure about, will the tax man know about my pension or will I have to tell them?

I'd appreciate some clarity in this area regarding taxation when someone is in ful time employment and in receipt of an occupational pension.

Cheers.

CLAPTON

your total income will be 31k in total so you will be a basic rate tax payer

it will be best for your job to have your normal tax code allocated i.e. 747L and your pension taxed at BR (i.e. all taxed at 20%)

you need to check that this happens and contact HMRC is not

you will note you pay no NI on the pension income

System

It is possible that your pension provider will have assumed that your pension is your only source of income and hence they will normally apply the standard tax code for your age, in your case for this tax year that is = 747L

Your current employer should issue you with a P45 after your final pay date, if you hand in that P45 to your new employer, they would also apply a tax code of 747L which would result in you getting your allowance twice and hence not paying enough tax.

However, if you get the chance, or if the pension provider and your new employer ask, you should inform one of them that it is your 2nd source of income.

When you get your first pension slip, it should show the tax code they have used.
Then when you get your first pay slip from your new employer, that too will show the tax code used.

At some point, you may need to contact HMRC to inform them that you have these two sources of income and ask them to change the tax code of one source to be = BR, it makes no difference if BR is applied to the employment or the pension.
(If you class the pension as the long term main source of income, it may be better to apply 747L to the pension income)

ceeforcat

I appreciate what you say Clapton but, from my time in the Revenue (or whatever it's called now) the reverse is true. Normally the allowances are given against the occupational pension. There are two reasons for that.

1) This source of income is likely to be permanent whereas the job isn't. Leaving the job just complicates matters.In other words every other source of income or new employment had tax BR applied. Some may remember in the old days that the district dealing with the occupational pension became known as the G.C.D. (General Claims District) and was responsible for allocating allowances.

2) It is easier to restrict the tax code at the pension income when one becomes entitled to the state pension.

Perhaps things have changed?