Tax on Pension

AB60

Can anyone tell me the difference

If earning £7476 p.a. tax is calculated at £226 p.a.
if earnings increase by £2008 p.a. tax is calculated at £666 p.a.

BUT

If earning £7476 (tax as above) and at 60 yrs of age
receive state pension of £2008 tax shoots up to £963 p.a.
(not even a full pension)

What is the difference between pension and earnings as income??? Why does the tax code drop and the tax amount increase so dramatically on such a small amount. How can ANYONE say that pension is unearned income when I, personally, have worked (and paid into the system) for 45 years!!??**

No wonder so many people fast exit this country:cool:

sammyjammy

Because people over the age of 65 have a different tax code?
I'm not sure what your complaint is.... sorry.

Income Tax allowance up to 65 is £5035 for 65-74 its £7280.

Sam

AB60

As stated I am 60 yrs of age not 65 and my tax code has dropped

purch

Why does the tax code drop

If your Tax Code has changed there must be a reason.

Find out that reason and you have your answer.

If the change in your Tax Code is incorrect then you need to tell your Tax Office and get it changed.

dunstonh

There is no age allowance at 60 (starts at 65) so the tax deducted should be the same.

If your personal allowance is £5225 then there is zero tax on that. The next £2230 is taxed at 10%. the rest above that is 22%.

So, on your example £7476, only has £21 chargeable to basic rate tax. With a further £2008, that is chargeable to basic rate tax fully at 22%.

Your calculation assuming tax goes up by a greater amount with the state pension is wrong.

Why does the tax code drop and the tax amount increase so dramatically on such a small amount.

The state pension is paid gross and the amount of the pension reduces your tax code.

How can ANYONE say that pension is unearned income when I, personally, have worked (and paid into the system) for 45 years!!??**

You misundertstand what is meant by unearned and earned. Did you go out and work this month to earn that pension? No.

EdInvestor

As I've often said it's amazing how many people don't realise pensions (including state ones) are taxed.

CLAPTON

AB60 wrote: »

Can anyone tell me the difference

If earning £7476 p.a. tax is calculated at £226 p.a.
if earnings increase by £2008 p.a. tax is calculated at £666 p.a.

BUT

If earning £7476 (tax as above) and at 60 yrs of age
receive state pension of £2008 tax shoots up to £963 p.a.
(not even a full pension)

What is the difference between pension and earnings as income??? Why does the tax code drop and the tax amount increase so dramatically on such a small amount. How can ANYONE say that pension is unearned income when I, personally, have worked (and paid into the system) for 45 years!!??**

No wonder so many people fast exit this country:cool:

I'm not sure what you are saying:

if you earn 7476 at work and also have a state pension of 2008 then your tax for the year ought to be about 669 assuming you do not have benefits in kind or other untaxed income. The tax will all come out of your earning and the state pension will be paid gross.

If your paying more then it looks like a mistake but you haven't really given sufficient details of your situation to make a proper judgement... like what is your tax code, when did you become a pensioner

Paul_Herring

EdInvestor wrote: »

As I've often said it's amazing how many people don't realise pensions (including state ones) are taxed.

Indeed. Or not. :rolleyes: I'm still waiting for some answers to that post Ed.

Which are you Ed by the way? Do you understand that pensions are not necessarily taxed? Yes some are. Not all.

Newly_retired

I have just got a new tax code on retirement. It's changed from 528L to 265L. They explain that they deduct the amount of my state pension from my personal allowance. This provides the new tax code. I receive my state pension gross, but my works pension will be taxed, taking my state pension into account via the new tax code.
I did know they would both be taxed but it was a surprise to see how it works. I had not read this anywhere before.

jem16

Newly_retired wrote: »

I did know they would both be taxed but it was a surprise to see how it works. I had not read this anywhere before.

It's not that both pensions will be taxed but more a case that they may be taxed.

Both your state pension and private pension count as taxable income including interest from savings and dividend payments. If these come to less than the personal allowance then you won't pay tax.

The recent changes which are yet to come in will mean that people over 65 will have a tax-free personal allowance of around £10k.

Newly_retired

So when I reach 65, I could be paying less tax? Another good reason for putting some of my savings into N S & I tax free certificates, so as to keep my total income including savings below that new threshold?