50% tax on annuity?

geofft1947

A relative of mine mentioned that his pension had gone down since he started paying 50% tax on it. He is aged 72 and in receipt of his state pension plus a small annuity pension. He tells me that the annuity is taxed at 50%. I found this hard to believe as I thought the 50% tax rate came in at over £150,000 pa. I don't actually know the size of his annuity, but is certainly nowhere near that amount, so I can't understand why he pays so much tax. I am currently 64. I retired early and took my private pension and am due for state pension in a few months. My relative tells me that I will also have to pay 50% tax. My total income with all pensions will be around £20k pa, so I only expect to be on the 20% rate. Am I missing something?

Gracchus_Babeuf

Sounds like nonsense to me. The income tax thresholds for pensioners are the same as for workers - for the time being. Maybe that relative of yours has multiple sources of income that total in excess of £150k per annum, in which case he would obviously pay the 50% rate.

gadgetmind

It's possible he's hitting the 30% bracket at £24k, which exists due to claw-back of age related personal allowance. Or maybe this annuity income reduced some benefits he's getting, which can have roughly the same effect?

geofft1947

Yes it does sound nonsense to me. One thing I am sure of that his income is nowhere near £150k and in fact he wouldn't even reach the 40% rate. Strange thing is, he has a work colleague who has the same annuity and is also being taxed 50%. Think I'll have to sit down with him and have a good look at his figures.

dunstonh

It is possible that his state pension taxation is being deducted via his pension income. The state pension is paid gross but taxable. So, sometimes you can actually get a K code (negative tax code) in retirement if you have a big state pension.

Also, if the cinome is just over £22k then the age allowance is reduced. This is usually handled via the tax code as well.

50% is not going to the be the case. So, it sounds like a misunderstanding.

louloufox

There is no way of government taking tax from the state pension, but it is taxable. Therefore all tax payable is taken from any other income. Maybe this happens to work out at half of the person's other income and this explains the confusion of the OP's relative?

jamesd

Add up all of his taxable income. Add up all of the tax being paid. Check that the tax paid looks right based on total income. It'll probably just be the tax on all income being taken from the annuity to keep things simpler.

geofft1947

Although tax is not deducted directly from state pension, I think in most cases it would be below the personal allowance i.e basic state pension £5300. Personal allowance £9940 and so no tax would be payable on that. This would still leave over £4k tax free on the annuity. Then the rest taxed at 20% up to the 40% level.

mania112

He's either got a much higher income that you realise or he is misled.

casey_junior

louloufox wrote: »

There is no way of government taking tax from the state pension, but it is taxable. Therefore all tax payable is taken from any other income. Maybe this happens to work out at half of the person's other income and this explains the confusion of the OP's relative?

Is it possible then to have a state pension that tax is due on?

bigfreddiel

dunstonh wrote: »

So, sometimes you can actually get a K code (negative tax code) in retirement if you have a big state pension.

Just out of interest how big can a state pension be - assuming you havn't deferred it.

fj