tax on annuity pensions after employment

Froglet

Could someone please answer a simple question.

My husband is finishing work next month and taking up his private pensions(2 separate ones) He has already earned more than the taxable level of £8105 so far this tax year but obviously paid tax per month through PAYE.

When he starts to receive his pensions will he be liable for tax?(the amount is under the taxable level per month).I don't mean to sound thick but i can't seem to find the answer.Does it go on what he earns each month or because he is already over the limit this year will he have to pay from now on?

Thanks.

Linton

Pensions are potentially liable to tax on the same basis as earned income. The pension company will deduct tax in the same way the employer did.

The tax payable is worked out on a yearly basis. At the end of the tax year the taxman will add together all income from all sources in that year and determine the appropriate tax. This will be compared with the total tax actually paid and your husband will then get a tax bill or tax refund.

At some stage HMRC will issue a tax code to the pension company so that the tax paid is correct but this will take a little time to sort out. I guess (but dont know) that the pension company will take 20% tax off in the meantime.

Note that the State Pension is paid gross, so it will consume most of the taxfree allowance.

Froglet

Thanks for that.He won't get state pension yet for a couple of years.So his only income will be the private ones.As they don't come to the tax free allowance per month i was hoping the tax code would mean he didn't have to pay any,as if it was earned income he wouldn't.

So in essence we either wait until the end of the tax year after paying it each month or we try and get the tax office to issue a tax code to the 2 seperate pension providers.Oh joy!

xylophone

Do be sure that you advise HMRC of the two pensions as soon as possible.

jem16

Froglet wrote: »

So in essence we either wait until the end of the tax year after paying it each month or we try and get the tax office to issue a tax code to the 2 seperate pension providers.Oh joy!

Once he gets his P45 he should forward that to his main pension provider. That will then allow his tax code to be utilised there.

With the other pension, it's important to let them know that your husband is receiving another pension. BR would normally be used on that.

However how much will he be receiving with each pension? It could be advantageous to have the tax codes split.

xylophone

Another thought for when your husband becomes entitled to his state pension.
http://webarchive.nationalarchives.gov.uk/+/www.direct.gov.uk/en/Pensionsandretirementplanning/TaxandNationalInsuranceinretirement/GettingyourtaxandNationalInsuranceright/DG_171913

Froglet

jem16 wrote: »

Once he gets his P45 he should forward that to his main pension provider. That will then allow his tax code to be utilised there.

With the other pension, it's important to let them know that your husband is receiving another pension. BR would normally be used on that.

However how much will he be receiving with each pension? It could be advantageous to have the tax codes split.

One pension is 3/4 of the total amount,the other 1/4.Combined they come to about two thirds of the tax free allowance per month .

So in reality he shouldn't be paying any tax?

CLAPTON

Froglet wrote: »

One pension is 3/4 of the total amount,the other 1/4.Combined they come to about two thirds of the tax free allowance per month .

So in reality he shouldn't be paying any tax?

the full facts always make it easier to be helpful
he may even get a tax rebate in the current year

glp

jem16 wrote: »

Once he gets his P45 he should forward that to his main pension provider. That will then allow his tax code to be utilised there.

With the other pension, it's important to let them know that your husband is receiving another pension. BR would normally be used on that.

However how much will he be receiving with each pension? It could be advantageous to have the tax codes split.

What do you mean about the tax codes being split please?

CLAPTON

glp wrote: »

What do you mean about the tax codes being split please?

if you have more than one income and the highest is less than 8105 (the personal allowance) then you can ask HMRC to split your personal allowance between your difference incomes so you pay the correct tax rather as you go than have to reclaim some at the year end.

John_Pierpoint

If course once your husband does start getting his "state (old age) pension" that is taxable too.
However, it looks like he has missed out on the increasingly insignificant "age allowance" ; an enhanced personal allowance payable to pensioners and the very old.

Don't forget he can reclaim the 20% standard rate tax payable on savings income, if he has not used up all his personal allowance against his pensions.
However the similar 10% tax credit shown against any share dividend, counts as standard rate tax, but is not reclaimable tax .

http://www.hmrc.gov.uk/budget2012/income-tax-rates.htm