Tax and private pension

pollypa8

Can anyone help? I receive a private pension from my late husband (taxed at source) as well as my state pension and own private pension. I retired in 2003.Inland Revenue is demanding tax for 2005/2006. As my husbands pension is taxed at source why is this income added to my own before my personal allowance is deducted? Please help. Also what is Pay, pension profit @ 22%.

jem16

pollypa8 wrote: »

As my husbands pension is taxed at source why is this income added to my own before my personal allowance is deducted?

The income is not your husband's, it is your income.

I'm surprised that HMRC is trying to claim back tax from 2005/6 as it sounds way out of date. What have you received from HMRC - a P800 I assume? What does it say?

Lots more detail would be needed although you may be better posting this on the Tax Board as it's more tax related.

What tax code is being used for your pension? What tax code is being applied to your own pension?

Also what is Pay, pension profit @ 22%.

Tax was 22% in 2005/6.

jamesd

Your husband no longer has a personal allowance or income. It's not his pension, it's yours. All of your taxable income is added up and your own personal allowance is applied to it. Your state pensions can't be taxed so the tax is normally taken from one of the private pensions using PAYE.

The basic rate of income tax was 22% for the 2000/1 through 2007/8 tax years so this is the income tax rate used for the 2005/6 tax year.

You're probably receiving a demand for back tax due to failing to properly declare all of your income by not including the income from the spouse's pension you're getting. If this is so, you should contact HMRC and tell them that you made the same mistake in later years and ask them to calculate the correct tax due for those later years. The penalties for declaring a mistake and asking HMRC to fix something are lower than if they find out and start an investigation on their own. If they do charge a penalty they will be willing to come to some arrangement to pay it over time so it's affordable to you. If the amounts are low enough they would probably adjust the tax code used for one of your non-state pensions.

When I wrote lower penalties, that's because HMRC has a formal scale of reductions to penalties based on who finds out first and how helpful the tax payer is in resolving things. Maximum reduction is for an unwitting mistake that the tax payer proactively tells them about, which can even completely eliminate the penalty.

Has HMRC sent you a letter saying they have started or are doing an investigation into your tax affairs?

pollypa8

Thanks for the info. This is the bit I do not understand, re, that particular tax year. Prior to and subsequent tax years are all in order. All my self assesments were completed pronptly. Earlier this year I received penalties which I paid (£1100) and now I have a further demand with penalties. P.S. I live in Spain so communication is spasmodic if at all from Inland revenue. Iam at my wits end.