State and army pensions - tax?

elljay

I've just been looking through my mother's finances to check everything is on track for her. She receives a state pension and an army pension from her late husband. No other income. She was told by HMRC several years ago that she no longer has to complete a tax return.

The total that arrives in her bank is around £1800 per month. Well above the tax threshold even when it goes up to £12,500 pa..

My understanding is that tax payable on both of the pensions combined is probably collected on the army pension. Is that how it works? I haven't got access to her paperwork right now (she's 200 miles away) and at 92 has decided to abdicate all responsibility for her money - apart from enjoying spending it that is!!! Quite right too.

She wants me to work out what her annual pre-tax income is which is what has highlighted my lack of understanding about pensions and tax.

Grateful for advice. Many thanks - Elljay

Merlin139

If she is getting a Army Pension she would be sent an ADVICE OF PAYMENT from:

Equiniti
Sutherland House,
Crawley,
West Sussex.

This would show what the monthly payments would be and what the tax code was as well as PAYE reference.

I would suspect that the whole of the TAX allowance would be used on the Military pension but you would need to check the advice notice.

The Military pension will increase by 2.4% from April 2019

elljay

Thank you. Yes I saw those statements last time I was there but didn't note the details. She will have filed them away and won't want the hassle of digging them out of her so-called filing system.

I'll check when I'm next there at Xmas, until then I'll just assume the total tax payable is taken from the Army pension.

Thanks for the info about the increase, she'll be happy with that - even more lunches out with her chums! It's a hard life!

EJ

Paul_Herring

My understanding is that tax payable on both of the pensions combined is probably collected on the army pension. Is that how it works?

Yes - the army pension will have an adjusted tax code to take the state pension into account.

squirrelpie

My understanding is that tax payable on both of the pensions combined is probably collected on the army pension. Is that how it works? I haven't got access to her paperwork right now (she's 200 miles away) and at 92 has decided to abdicate all responsibility for her money

Yes, the state pension is taxable but is paid without any tax being paid on it. So the effect is that your personal allowance is reduced by the amount of state pension you are paid, and so tax is paid on more of whatever other income you have, in this case the army pension.


If she wants you to manage her money, has she set up a power of attorney for you? It would seem a good idea - it will make things easier for you to deal with financial organizations on her behalf, and will make life simpler if she becomes incapable of managing her affairs rather than than just choosing not to.

elljay

Excellent, thanks for the replies. Yes POA is set up for me (which is why she's decided I'm her financial adviser too!!)

This all came about because she wanted to calculate how much she can gift aid for various charity contributions. I must say I don't understand the maths for gift aid but the amount of tax she pays means she's highly unlikely to exceed this.

Thanks again. EJ

xylophone

No other income.

No savings/dividend income?

elljay

Yes she has some savings but the interest is less than £1k p.a. That's ok isn't it?

xylophone

Yes she has some savings but the interest is less than £1k p.a. That's ok isn't it?

https://www.litrg.org.uk/tax-guides/other-tax-issues/savings-and-tax