40% tax on private pension?

pickles1234

Hello,

I have recently gone back to work after retiring from my old workplace. Upon retiring I received a private pension which was given to me partly as a lump sum that was taxed and partly as monthly payments which originally was not taxed.

This week I have received a letter from HMRC saying i will be taxed 40% on my private pension payments on top of my income tax and the original tax this pension received. Is there any way for me to avoid this additional tax on my pension?

Any information will be helpful

Thank you

dunstonh

Is there any way for me to avoid this additional tax on my pension?

Make a pension contribution

Can you clarify the situation as what you say is not possible. For example you say the lump sum is taxed but the income is not. Yet it should be the other way around. You are not taxed 40% on top of income tax. income tax is 40% if you earn into the higher rate band.

Are you a basic rate taxpayer or a higher rate taxpayer?

pickles1234

My lump sum was taxed when it was initially given to me and the monthly payments have been taxed but at the lowest rate.

HMRC seem to have now compounded my earnings from work with my income from my pension and started to tax me at a new higher bracket of 40% leaving me much worse off.

dunstonh

My lump sum was taxed when it was initially given to me and the monthly payments have been taxed but at the lowest rate.

Why was your lump sum taxed? It goes against what it is typically known as which is "tax free cash".

and the monthly payments have been taxed but at the lowest rate.

They may be taxed at 20% but is that rate correct for your tax position?

If you are a basic rate taxpayer then you should pay 20%. If your total earnings goes into the higher rate band then the applicable earnings in that band should be taxed at 40%.

Perhaps you should give us some figures. Also, verify your tax free cash payment was taxed.

atush

Your commencement LS should not have been taxed.

as far as your pension, it is income so will have tax to pay. How much will depend on what you earn. If you earn enough, it will be taxed at 40%, which is why the general advice is to NOT take a pension while still working, unless you have to.


And if you have to, then make new pension contributions into a new (or your new work pension) which will get 40% tax relief and you c an take it (and a new 25% tax FREE lump sum) later when you are no longer working and therefore will only pay basic rate tax in all likelyhood.

jamesd

Private pension income is handled under PAYE, except that no NI is due. HMRC will send both your standard work and pension provider notices of coding for this. Probably gave your full personal allowance to the main work and none of it to the pension provider, which would be correct handling. If your combined employment, pension and other taxable incomes are more than £41,450 this year then the part over that will be taxed at higher rate. If the normal work is more than that then all of the pension will be taxed at higher rate.

atush

Another way to reduce your tax overall is to make sure you use any tax relief packages available. Esp if any savings income is taking your pension into a 40% tax area.


In that, if you have taxed income from savings or investments- to switch these to ISA shelters.

And if you have a spouse, to put ISAs and investments into their name (esp non ISa investments if they do not work and so don't use their personal allowance).