tax on private and state pension whilst working

oxford_yellow

Hi, so i have cashed in my private pension for an annuity, in a few months i will have reached state pensin age and will take my state pension, i will also carry on working full time as i feel fit and healthy enough.


how does the tax work on these 3 incomes? do i have to inform both the private and state pension people (as well as my employer) or do i just leave it (they all have my tax code as the basic 1250L) and just fill out a self assesment in april next year?



thanks

molerat

You need to contact the tax office and get your tax allowances allocated accordingly, the employer and pension can only do what HMRC tell them. Both employer and pension should not be using 1250L. Your tax free allowance will be reduced by the value of the state pension and the most likely scenario is that the employment will receive the remainder and the pension will be allocated BR (provided you remain a 20% tax payer).

xylophone

Once you reach state pension age you will not be liable for NI on your salary - is your employer aware?

The Personal Allowance for 2019/20 is £12,500.

Income above this is taxable at the appropriate rate.

The state pension is paid gross but is taxable income.


Normally HMRC would adjust the tax code on salary/pension income to account for tax due on the state pension.

Your Personal Tax account can be accessed here

https://www.gov.uk/personal-tax-account

Contact HMRC to make sure that the correct amount of tax is paid.

You are aware that you can defer your state pension if it suits your situation better?

https://www.gov.uk/deferring-state-pension

lisyloo

Have you considered deferring the state pension.

Don’t know you full circs
E.g. if it’s 20% not deferred and 20% deferred then it might not make a difference

But it’s certainly worth considering.
If you didn’t know you can get a higher amount if you defer your start date.

In some cases this will make a difference I.e. if the state pension income ends up in a lower tax band.
For example My BIL is working and has deferred his SP, but that will be his only income so it will be 0% tax in future rather than 20% tax now.

It’s generally not considered worth doing it solely for the increase in SP (as you have to live about 20 years to get the benefit), but it would be worth doing it if some of your income is taxed a 0% instead of 20% or 20% instead of 40%.

oxford_yellow

thanks for responses, i will just slightyly (approx £2-3k) go over into the 40% tax bracket.


i did look at defering, but decided against it, as, well, i want my money now (keeps the wife happy anyway lol)


so basically - i just need to speak directly with HMRC and all will be sorted?

xylophone

Details here.

https://www.gov.uk/government/organisations/hm-revenue-customs/contact/income-tax-enquiries-for-individuals-pensioners-and-employees

mgdavid

oxford_yellow wrote: »

thanks for responses, i will just slightyly (approx £2-3k) go over into the 40% tax bracket.
......

Thankyou for being so generous as to pay more tax then you need, it's appreciated by the State and the rest of us :beer:

lisyloo

Many on here with an MSE bias will think you are nuts to pay 40% tax when in a few years you could pay 20% on a slightly higher figure, but it’s your choice (or maybe your wife’s)

squirrelpie

i just need to speak directly with HMRC and all will be sorted?

I don't think you need to speak to HMRC at all, but you can if you wish.


When your annuity begins (began?) to be paid, the annuity provider will (have) contacted HMRC and been given an appropriate tax code.



If you were working in a PAYE job and are still in the same job then the annuity company won't have been given 1250L. So perhaps you are self-employed, in which case it is up to you to declare your income on your self-assessment.


When you claim your state pension, DWP will infom HMRC about your new income (state pension is paid under PAYE) and HMRC will issue new tax codes to your annuity provider and your employer (if you have one). You will get copies to deal with your own tax affairs.