Tax on pension?

jennyjelly

Hi, I'm sorry to ask a really basic question but can't find the answer in other posts so hopefully someone can help.

I'll be 60 in July and taking my civil service pension. I am now working part time for the NHS and not earning quite enough to pay tax. When my pension starts it will take my income over my personal allowance.

Will tax be deducted from my pension and if so at what rate? I'm wondering if it would be wise to reduce my working hours if so.

This pension stuff is all new to me so thanks in advance for any advice 😊

Silvertabby

If you don't want to reduce your hours, then just ask HMRC to split your tax code between your two incomes. They do it all the time, so you won't be asking for the moon.

molerat

You can have your tax code split and allocated so the correct amount of tax is collected. The pension may allocate a code of BR and take 20% so once it comes into payment contact the tax office and they will allocate the codes accordingly.

jennyjelly

Thank you. What would be the effect of that? Sorry to be a complete numpty!

molerat

You have a tax free allowance of £12500 in 19-20. You ask the tax office to allocate say £8000 to one income stream and £4500 to the other. You will then only pay tax on the amounts over those sums. Obviously the numbers depend the actual income amounts, set the tax allowances to just below the actual annual income amounts. You then need to check it each year as HMRC invariably get the split wrong, they will keep one the same and put all the increase on the other :mad:

Silvertabby

Your personal allowance from April will be 1250 meaning your first £12,500 of income will be tax free and the remainder taxed at 20%.

HMRC could, for example, split your tax code so that only the first £8,000 of your salary is tax free, with 20% due from the rest, leaving £4,500 of your CS pension tax free (and 20% tax from the rest).

The actual split will depend on the amounts of pension/salary.

Whatever way they do it, as long as the 2 codes add up to 1250 you'll pay the right amount of tax. However, as molerat says, your first pension payment may be taxed at BR (20%) pending allocation of the appropriate tax code.

ADD: crossed with molerat. Funny how we both went for the 8000/4500 split !

jennyjelly

Ah I see, thank you for clarifying that.

I'll ring HMRC in July when my pension starts.

Thank you for the help ��

Dazed_and_confused

Unless you have previously applied for Marriage Allowance in which case the split would take into account your lower Personal Allowance.

Realistically it might be something like x at NHS and y available to the Civil Service

x being HMRCs estimate of your taxable NHS salary in 2019:20

y being the allowances left over