Retired .... but still getting tax demands!

Macuser

I have been retired now for 5 years and regularly receive tax demands for unpaid tax. On contacting the tax authority I have been told that as my SERPS state pension I receive exceeds my threshold of £10,500 per year I have to pay income tax out of my monthly private pension payments. Unfortunately these are not sufficient to cover ALL of the tax shortfall so I have to pay a lump sum (or by monthly installments) every year. Is this right? What would happen if I didn't have any private pensions? Would I still get a tax bill to pay?

kidmugsy

You have to pay income tax on all your income (bar in tax shelters such as ISAs) over £10,500 per year.

"What would happen if I didn't have any private pensions? Would I still get a tax bill to pay?" Yes, if your state pension exceeds £10,500 per year.

FOREVER21

If your SERPS/ State Pension exceeds your allowance £10500 this year and you have no other income then any tax due is collected monthly by way of a reduction in your allowace and the issue of a tax code and collected through PAYE system. Or if you contact HMRC you may be able to opt for self assessment, but beware this entails form filling each year.

[Deleted User]

Hi,

use this wee gadget to calculate tax.

Macuser

Thanks very much. I guess there's no way to escape the taxman! Unless if you've got nowt!

dori2o

It ems you fall into a trap that I see quite often.

Your State pension is more than £10500, therefore you have a negative tax code, often referred to as a K code (as the code number is prefixed with a K, i.e. K312)

That in itself is not a promlem, it just means that all your tax allowance is used by your state pension (from which no tax is taken at source) and any excess is incorporated in the code to collect via any PAYE source of income you have.

However, when you are on a Kcode, the pension provider/employer (whoever is operating the code) can only make a deduction from your income of upto 50% of that income.

So for example if your state pension was £15000 and you have a private pension of £1500, your total income would be £16500.

The amount of tax payable on this amount is as follows.

£16500 - £10500 (personal allowance) = taxable income of £6000

£6000 x 20% = £1200.

You would have a K code of K449.

The maximum that can be deducted from your £1500 pension would be £750 (50% of £1500).

As your tax liability on your £16500 income is £1200, you will need to make a lump sum payment of £450.

There is no way to resolve this so that you pay all the tax due at source unless you can increase your taxable income either with a further pension, or by working.

Really you should be completing self assessments each year as this is how these cases are normally dealt with.