Forces Pension & Tax Implications

Dreamer80

Hi,

My hubby is leaving the Forces after 22 years service and will be receiving an immediate pension.
He is currently job hunting.

It was briefly mentioned that he could use his pension as his "Personal Allowance" (tax purposes I assume?) If this is correct, how does he go about doing this and assuming he finds employment, would he pay the normal tax percentage on any new job?

Hope that makes sense and thanks in advance for any advice,
D80

greytroot

He would expect to have his tax allowance on his pension as this is a set amount and have a "T" code for the rest on his employment.

Watch his P60 etc as quite a lot of servicemen and women who have left had been paying no tax on their pension which has left a few with large tax bills. (including myself).

tocsin

Hubby's pension is the most "stable" income, so he should ask HMRC to allocate his personal allowance to the pension (I am assuming that the pension will be above the personal allowance level - £8105 in 2012/13).

When he gets a job, it will need a BR allowance code (no allowance - all income from this job taxed at basic rate - 20%), unless in total he will be a higher rate taxpayer, and then it starts getting more complicated!

Hope that helps!

System

You need to take action because Xaffinity assume your pension will be a second income and arrange a BR code automatically regardless of whether you actually do have another job. (They did with me 7 years ago)

Dreamer80

Thanks Guys,

So what code should his pension have if he allocates his Personal Allowance to it? T?

And when he manages to find employment would he indicate on a P46 that his wage would be a second source of income?

D80

tocsin

Dreamer80 wrote: »

Thanks Guys,

So what code should his pension have if he allocates his Personal Allowance to it? T?

And when he manages to find employment would he indicate on a P46 that his wage would be a second source of income?

D80

The code should be similar to the one he got with his forces pay - bog-standard would be 747L at the moment, I think - if there are any complications, a quick question on the Cutting Tax part of this board will get some tax experts (I'm not one!).

A new employer will start with an "emergency" tax code, usually T with a "week 1/ month 1" method of taking tax. Then when they get notification from HMRC they will apply the code that HMRC tell them. Probably worth letting the employer know that hubby expects a BR coding because he is getting a pension, but it will be HMRC that they listen to, so it is HMRC that you need to get right.

Hope that helps.