tax on multiple pensions

ianra

Any help to understand this would be much appreciated!!

I have recently taken early retirement and have pensions from 3 different pots. The first started paying from June and for this I have a tax coding. The other two start paying at the end of this month. The total from all three will be approx. £22,000 per annum. I have just received tax coding notices for the additional 2 pensions which state I will pay 40% tax on both. I had assumed that all three would be added together to give my earnings for a year and be taxed accordingly (22,000 less allowance and the remainder taxed at 20%), am I wrong??

More detail:
I took redundancy and took my pensions early. I have paid tax on the redundancy payment and taken 25% from each of the three pensions which will enable me to pay off the mortgage. The pension that started paying in June has been taxed at the normal earnings allowance less the benefit of a company car and fuel benefit. The car has gone back and the tax coding notice for the first pension reflects this. The other two pensions have a tax code of D0.

jem16

ianra wrote: »

Any help to understand this would be much appreciated!!

I have recently taken early retirement and have pensions from 3 different pots. The first started paying from June and for this I have a tax coding. The other two start paying at the end of this month. The total from all three will be approx. £22,000 per annum. I have just received tax coding notices for the additional 2 pensions which state I will pay 40% tax on both. I had assumed that all three would be added together to give my earnings for a year and be taxed accordingly (22,000 less allowance and the remainder taxed at 20%), am I wrong??

That depends on exactly how you're looking at it. With respect to tax your understanding of it is correct but how it is taxed may be different.

Basically one pension ( probably the first one ) will use your main tax code. The second and third pensions will each have a separate tax code, usually BR or D0. BR is Basic rate so 20% and D0 is 40%. However this can vary depending on actual amounts involved and your tax code can be split over two or more incomes if that's easier.

This tax year you have the added issue of earnings and redundancy payments so that has to be added into the equation. That may well see the two extra pensions being taxed at 40% for this tax year.

More detail:
I took redundancy and took my pensions early. I have paid tax on the redundancy payment and taken 25% from each of the three pensions which will enable me to pay off the mortgage. The pension that started paying in June has been taxed at the normal earnings allowance less the benefit of a company car and fuel benefit. The car has gone back and the tax coding notice for the first pension reflects this. The other two pensions have a tax code of D0.

Sounds sensible for this tax year. What will be your total income for earnings, redundancy and pensions this tax year?

For next tax year, your income will be £22k so the tax codes will change. What is the amount for each pension?

mgdavid

on what date did you finish paid employment?
I suspect jem is spot-on, your salary, benefits-in-kind, and any redundancy above £30k will have used most if not all of this years PA and 20% band so pensions can easily end up taxed at 40% until next April.
Have you actually informed HMRC of the date on which you no longer had the car and fuel benefits? ( otherwise they may/will assume they run for the full year).
Can you clarify what tax you paid on the redundancy as the firt £30k is tax-free?
I was in a similar position last year as I retired at the end of June 2014.