Query on tax code for pension

TonyM19

Dazed_and_confused wrote: »

Your payslip should show the taxable salary I.e amount after pension contribution which attracts tax relief, which is the amount relevant to calculate your tax code.

Your easiest option would be to calculate the taxable pay you expect for the forthcoming tax year and then go onto your personal tax account and update that to show what you expect to receive in the year to April 2018 and the HMRC will then send you a new code if necessary

Thanks. My payslip shows Total Deductions for the month and Taxable Pay for the year so far - is that what you mean? Calculate how much I will earn between now and the end of March with deductions and add it onto there?

Is the pension contribution deducted and then the personal tax allowance of £11k or is it the other way round?

I don't know how to access my personal tax account. Time to find out!

Dazed_and_confused

Personally I would leave this (2016:17) tax year as it is and try to get 2017:18 as accurate as possible so you need to work out estimates of your pay for April (2017) to September and October to the end of March (2018) to get an accurate total for the coming year.

Remember to factor in an amount for any payrise you might get during the year (not much I guessing the public sector!).

Payslip might show something like this,
Salary £3600
Pension contribution £360
Taxable pay £3240

You receive all the tax relief upfront in this situation and your P60 would show the total of all the years "Taxable pay" amounts - these are what you need to calculate your pay on for tax purposes.

Personal tax account is found on gov.uk (you will find an estimate of your state pension when you log in which might be of interest to you)

TonyM19

Thanks. I can see why I have to pay 40%. Forgot to take what I'd already earrned this year into account (you can't take a phased retirement teacher's pension unless you have a certain % pay cut). D'oh!

Using this method, I should be fine to avoid 40% from 17/18, even before the drop in September. Do I just see what happens or is there a way that I can intervene to make sure it does?

neilvw

Thanks for confirming the salary figures you gave were before pension contributions. I've done some calculations:

2016/17
Salary before pension contribution: £42,474 (assuming 1% pay rise was applied in Sep 2016)
Pension contribution: £4,332
Taxable salary: £38,142
Pension in payment: £1,088 (approx)
Taxable income: £39,229
=> BR tax only (higher-rate threshold = £43,000)

2017/18
Pay before pension contribution: £40,306 (assuming 1% pay rise applied in Sep 2017, alongside hours cut)
Pension contribution: £4,111
Taxable pay: £36,195
Pension in payment: £4,394 (1% rise in April 2017 - equal to CPI in Sep 2016)
Taxable income: £40,589
=> BR tax only (higher-rate threshold = £45,000)

2018/19
(assuming no further phasing of retirement in 2018/19)
Pay before pension contribution: £39,196 (assuming 2.5% pay rise - 'worst-case' scenario)
Pension contribution: £3,998
Taxable pay: £35,198
Pension in payment: £4,503 (assuming 2.5% rise - guess at CPI in Sep 2017)
Taxable income: £39,701
=> BR tax only (higher-rate threshold = at least £45,000)

Once your tax coding is sorted (after you have spoken to HMRC / updated your income on your online personal tax account) it should reflect that you will not be subject to HR tax.

Having looked at this page on phased retirement

https://www.teacherspensions.co.uk/members/your-scheme/retirement-planning/types-of-retirement/phased-retirement.aspx

I have a question: it says,

[Case study: Habib] He can take phased retirement without having a break in employment - but only if his Pensionable Salary reduces by at least 20% of the average salary he received in the previous 6 months. He has to take this reduction in salary for a minimum of 12 months. Habib can take a maximum of two phased retirements before his NPA.

You're having a c. 10% salary cut, so will you be classed as having a break in employment? Or did you perhaps come under earlier rules because of long service, and can avoid the break in employment (which would have knock-on effects on pension accrual)?

TonyM19

neilvw wrote: »

I have a question: it says,

[Case study: Habib] He can take phased retirement without having a break in employment - but only if his Pensionable Salary reduces by at least 20% of the average salary he received in the previous 6 months. He has to take this reduction in salary for a minimum of 12 months. Habib can take a maximum of two phased retirements before his NPA.

You're having a c. 10% salary cut, so will you be classed as having a break in employment? Or did you perhaps come under earlier rules because of long service, and can avoid the break in employment (which would have knock-on effects on pension accrual)?

Thank you for the detailed breakdown.

I took a 20% reduction - forgot to factor in the higher pay that I received from April to November. Didn't need to take a break in service.

Thanks for the help from everybody on this thread. Much appreciated.