Tax on multiple incomes

ABN

Been a non tax payer for quite some years now but once I full my finger out and setup my pension I will most likely fall into the tax payer bracket.

Been living off of
a) Savings
b) 2k PA final salary pension
c) Interest on savings.

Additional income would be
d) Second final salary pension of 2k back dated to beginning of May
e) Draw down pension (amount still to be decided)
f) SP deferred.

If I set the drawdown amount to be between 16K - 19K I would then have to pay tax on all incomes. How would my tax free allowance be applied?

If I set the drawdown amount to around 10K, what would I then pay tax on and how? Would I be able to get the 5k tax savings interest and will I have to fill in a tax form every year?

If I have to start to pay tax what do I do about the income recieved so far?

What would you suggest I set the drawdown amount to in order to minimise tax and not require tax forms each year?

Sorry for the rambling post but hope it provides enough info.

jem16

ABN wrote: »

If I set the drawdown amount to be between 16K - 19K I would then have to pay tax on all incomes. How would my tax free allowance be applied?

Via your tax code/s on one or all of your pensions.

If I set the drawdown amount to around 10K, what would I then pay tax on and how?

That would give you around £14k pension income so you would pay tax on £3400 via your tax code/s.

Would I be able to get the 5k tax savings interest and will I have to fill in a tax form every year?

You would get about £1600 at 0% interest and the rest taxable at 20%. I should imagine it could be handled by a change to your tax code rather than filling in a tax return.

If I have to start to pay tax what do I do about the income recieved so far?

All that matters is this tax year's income. HMRC should take that all into account when issuing tax codes.

What would you suggest I set the drawdown amount to in order to minimise tax and not require tax forms each year?

£10.6k minus your £4k of final salary pension.

ABN

Sorry I’ve got so many different options/permutations going though my mind at the moment that my OP completely missed the point.

I’m trying to understand how the tax works with multiple incomes so that I can best judge what to do.

If I get a salary of say £20600 from an employer they know that I have to pay £2K tax (£20600-£10600=£10K@20%) and I would have to pay tax on all interest received.

I will have 3 different “employers” (pension incomes) each of whom obviously only know about the monies they are providing and nothing about any other source.
So I will be getting say
1 @ £2k
1 @ £2k
1 @ £Nk
Interest on savings

So how does each “employer” know how much tax to pay?

Note: On my first few years of being a non tax payer my £2k pension was all taxed @20% and I had to reclaim it from the tax office each year. So they obviously didn’t know how much tax I should pay. This is what I want to try to avoid.

Second question. As I understand it if my 3 pensions + interest is < £15600 I can still get the interest tax free?
Since amount of interest can/will vary if I claim interest tax free but inadvertently go over the £15600 by a few £ or a few £100’s what happens? Do I have to keep double checking what my years total will be?

CLAPTON

ABN wrote: »

Sorry I’ve got so many different options/permutations going though my mind at the moment that my OP completely missed the point.

I’m trying to understand how the tax works with multiple incomes so that I can best judge what to do.

If I get a salary of say £20600 from an employer they know that I have to pay £2K tax (£20600-£10600=£10K@20%) and I would have to pay tax on all interest received.

I will have 3 different “employers” (pension incomes) each of whom obviously only know about the monies they are providing and nothing about any other source.
So I will be getting say
1 @ £2k
1 @ £2k
1 @ £Nk
Interest on savings

So how does each “employer” know how much tax to pay?

Note: On my first few years of being a non tax payer my £2k pension was all taxed @20% and I had to reclaim it from the tax office each year. So they obviously didn’t know how much tax I should pay. This is what I want to try to avoid.

Second question. As I understand it if my 3 pensions + interest is < £15600 I can still get the interest tax free?
Since amount of interest can/will vary if I claim interest tax free but inadvertently go over the £15600 by a few £ or a few £100’s what happens? Do I have to keep double checking what my years total will be?

each of your income providers 'know' how much to tax to withhold because you tell HMRC who then tells them.

HMRC divides your tax allowance (£10,600 per annum) between the different incomes as you tell them to:
if you get it wrong then it gets sorted out after year end when the full details are known

mgdavid

CLAPTON wrote: »

......
if you get it wrong then it gets sorted out after year end when the full details are known

i.e. after you have done an SA tax return. It looks highly unlikely that you will be able to avoid it.

zygurat789

ABN wrote: »

Second question. As I understand it if my 3 pensions + interest is < £15600 I can still get the interest tax free?
Since amount of interest can/will vary if I claim interest tax free but inadvertently go over the £15600 by a few £ or a few £100’s what happens? Do I have to keep double checking what my years total will be?

That's not quite right.
Depending on your income you MAY get up to £5,000 of interest tax free.
If your income is £10,600 you will be entitled to £5,000 of interest tax free.
If your income is £15,599 then you will receive £1 if interest tax free.
Sometines it may only be possible to achieve the correct tax liability after the end of the tax year.

CLAPTON

mgdavid wrote: »

i.e. after you have done an SA tax return. It looks highly unlikely that you will be able to avoid it.

in many cases a SA may be necessary but in a simple case of multiple pensions plus a bit of interest, a letter to HMRC (or even a phone call) would often suffice.

jem16

ABN wrote: »

I’m trying to understand how the tax works with multiple incomes so that I can best judge what to do.

I did actually answer that point in Post 2 but I was obviously not very clear in the answer.

jem16 wrote: »

All that matters is this tax year's income. HMRC should take that all into account when issuing tax codes.

Subsequent answers have clarified that for you so hopefully it's clear now.

Alex_Meek

Have a help from Tax consulting companies as they would guide you the best for you.

zygurat789

Alex_Meek wrote: »

Have a help from Tax consulting companies as they would guide you the best for you.

And cost you for nothing. If if you did nothing HMRC have a system which should pull it all together but don't rely on them, keep an eye on it yourself.

barnaclebill

I have 4 pensions and the standard retirement pension so 5. I contacted HMRC and they asked my largest pension provider to take the tax off for the 3 small ones as well however I just noticed this year that I have been underpaying the past 3 years since I got my state pension, this was not noticed as I was paying extra tax for renting out my house and thought the demand was for that only.
Feel stupid as it is a simple calculation for me to do, total for 5 pensions -£10600 x 20%. But I never checked until yesterday, left it to my marine accountant for my seamans earnings and they focus on the tax free element of that only.