Military pension and income tax double tax? 21 February 2019 at 8:31PM in UK armed forces MoneySaving 9 replies 5.4K views

Mick74

Looking for a bit of advise after a lightbulb moment a few weeks ago. Am I being overtaxed?

I get a military pension of less than 10k a year and it is taxed at 20% BR. I also have a job where with a lot of overtime brings me a decent wage taxed as normal through the tax code. Deductions for the company van private use and the 40% band rate adjustment reduce my tax code as expected.

The tax code is decided on the total income as you know, wages, overtime, van benefit and pension. They use the full pension amount even though I have paid 20% on that already, that's £1650 a year tax paid but then pay tax on the full amount again...am I being taxed twice or is there a loophole?

Silvertabby

Your military pension is taxable income, so 20% tax (BR code) sounds correct. What do you mean about being taxed twice? Are you saying that your employment tax coding has been reduced by the amount of your military pension? If so, then that's a HMRC error - no loophole needed.

Craig2909

I have my pension tax code to match how much my pension is, so I pay no tax on it. The little that remains from my tax free allowance is then coded for my employment.
- I'm obviously paying tax sooner ( as in less earnings ) on my employment wages.
You pay the same either way but it feels nicer on pension day to get the full amount !!!

Mick74

What I mean is on my tax coding notice it shows my wages, van benefit, FULL pre tax pension (not the amount after the 20% already paid on it) as a total income which just pushes me into the 40% bracket so then reduces my tax code further. I hope that makes sense..

Silvertabby

Mick74 wrote: »

What I mean is on my tax coding notice it shows my wages, van benefit, FULL pre tax pension (not the amount after the 20% already paid on it) as a total income which just pushes me into the 40% bracket so then reduces my tax code further. I hope that makes sense..

Your income(s), when listed on your tax coding, will always be pre-tax as HMRC will look at your total income/taxable benefits when calculating your tax code. If you think your tax code is wrong, then it may be best to speak to them for an explanation.

Shipwreck1964

You can also register for Government Gateway account. That way you can login and keep up to date with all your PAYE contributions over the years and check if you have enough qualifying years for the State pension. Equiniti paymaster keep HMRC up to date with your pension. I was advised to have my pension taxed at BR and my main job with whatever tax code HMRC saw fit depending on your situation. However if in doubt HMRC is just a phone call away.

00ec25

Mick74 wrote: »

What I mean is on my tax coding notice it shows my wages, van benefit, FULL pre tax pension (not the amount after the 20% already paid on it) as a total income which just pushes me into the 40% bracket so then reduces my tax code further. I hope that makes sense..

perfectly correct

the coding notice is HMRC's view of your total PRE TAX income from all the sources they know about

if that total exceeds the basic rate tax band, then the code will be adjusted to collect the extra 20% tax due because you are now a higher rate taxpayer (40%) on the amount OVER the basic rate band

in simple terms:
you get 11,850 tax free
you pay 20% tax on the next £34,500
and finally you pay 40% on anything in excess of 46,350

clearly therefore your pension + salary + overtime + benefit in kind is more than 46,350 so your code needs to be adjusted to collect the extra tax.

badmemory

Shipwreck1964 wrote: »

I was advised to have my pension taxed at BR and my main job with whatever tax code HMRC saw fit depending on your situation. However if in doubt HMRC is just a phone call away.

This is actually bad advice. Your pension income is forever - well for the many years you are going to live, your employment income is only for as long as you are in that employment. The code on your pension would be best at just under what your actual pension is, this protects you against underpaying tax in a normal year.


This would protect you against a 20% shortfall in pension income for a few months if your job for some reason fell through & that seems to be happening to a lot of people at the moment.

Shipwreck1964

At the age of receiving the pension (41) It made perfect sense to have the pension taxed at BR with still 26 years plus of paid employmet still to go. Paymaster General informs HMRC of pension increase at age 55 so that the correct tax code is applied. I am registered on the HRC Gateway and it clearly shows my income form pension and employment and the tax code applied for each. As stated in prevous post, if you think the tax applied is incorrect you can always speak to them. If the pension was my sole income or my eanrings from employment would be less, then I would flip it around and have the basic tax 1185L applied to my pension. 6 of one and half a dozen of the other.

peteuk

00ec25 said:..

in simple terms:
you get 11,850 tax free
you pay 20% tax on the next £34,500
and finally you pay 40% on anything in excess of 46,350

So in simpler terms if your Pension, was your only income and is less than £11850, then you wouldn't pay tax on it. 
If you didnt have a pension and your  job payed over  £34,500 then normally your first £11,850 would be tax free and then you'd be taxed at 20%
If your new job pays over £46,350 then the first £11,850 would be tax free, the next £34,500 taxed at 20% and then any over the £46,350 will be taxed at 40%. 
So throw your wage and pension together so lets say your pension is £10,000 and your pay totals £46,000 then income would be £56,000 (First £11,850 tax free, next £334,500 at 20% and the rest at 40%) 
So regardless of if its the pension or the first £11, 850 of your wage, it will be tax free.