Claiming Deferred Pension whilst working

bronteblue

My husband is 54 and working and will hopefully continue to do so until he reaches 60 in 2018, he also has a deferred NHS Pension (with 30 years) we have recieved the figures back to claim this early at 55 which we are happy with, as it means we can now accoumualte some savings over the 5 years before he officially retires and offset it against our mortgage.

Couple of questions:
His current salary and deferred pension will total around £43k, is your personal tax allowance taken off before tax banding is determined eg: would he still pay 20% tax or fall into the higher bracket

He will be working until 2018 and paying NI contirbutions through his current employer, he has already worked and paid NI for 36 years would he have to pay NI on the pension sum too if so is this automatically worked out by DWP or do we need to start/stop it.

Thanks
Bronteblue

Linton

Tax - the two incomes are added together and the personal allowance taken off the total. The amount left over determines the tax. HMRC will sort out the tax paid by each income stream so that the total tax paid is correct.

NI - you only pay NI on earned income. Pensions dont count.

If your husband is over the 40% band it may be worthwhile for him to pay extra pension to reduce his taxable pay below the threshold. However from your figures, assuming there is no other income, he will stay in the 20% band.

xylophone

HMRC will sort out the tax paid by each income stream so that the total tax paid is correct.

Contact HMRC and make sure this is done.
Don't forget that savings income is taxable and can push you into a higher tax band.

rpc

Linton wrote: »

HMRC will sort out the tax paid by each income stream so that the total tax paid is correct.

HMRC *should* do this but they often get it wrong and then pursue you for the underpayment when they finally work out their mistake. You need to tell HMRC to ensure they adjust the tax codes on the income streams, you then need to check their maths to make sure they have got it correct.

bronteblue

what happens if the savings are in a joint account? or if we take out some ISA's are these tax free

xylophone

Interest on money in a joint account is apportioned http://www.hmrc.gov.uk/manuals/saimmanual/saim2420.htm
Interest on ISAs is tax free.
If one spouse is a non/lower/standard rate tax payer and the other a higher rate tax payer, it makes sense from a tax viewpoint for savings to be held in the name of the former.

See also http://www.hmrc.gov.uk/tdsi/ten-per-cent-guidance.htm in conjunction with http://www.hmrc.gov.uk/rates/it.htm for current tax rates.