State Pension - Personal Allowance

xylophone

https://www.litrg.org.uk/tax-guides/pensioners/how-my-tax-collected

If it is not possible for HMRC to collect any tax due on your state pension through the PAYE system, you may have to complete a Self Assessment tax return each year. Alternatively, HMRC may send you a Simple Assessment.

badmemory

Unfortunately they no longer permit self assessment in these circumstances & even have said to me that if I file self assessment they will ignore it, so you need to keep very careful personal records as if you are filing self assessment in order to check their figures.

GrandmaStitch

I've just received my first State Pension payment and I work so pay tax via PAYE.  My SP starts on 22/11/22.  My tax code has been adjusted to reflect a reduction to my personal allowance by a full year of SP even though I will only receive 4 months of it in the tax year.   It leaves me with a tax free value of £10 for the whole year This means that I will overpay tax by approx £2500 by end of March. 

HMRC have assured me that I will get that back after I submit my tax return next June, so possibly by end of July I might have that money back.  I was also told that there is absolutely no way to have my tax code corrected in the current tax year because the value is dictated by DWP.   

This seems to be unfair and a backdoor way of getting more money into the HMRC coffers for approx 7 months.  Remember when the banks used to hold money for 3 days and it was eventually corrected to only a few hours? 

I am horrified by this and there are many people who work and don't submit personal tax returns who could miss out on recovering this Stealth Tax, please share with anyone who is claiming state pension this year or in the future.

p00hsticks

Does your tax code have a M1 indicator on it ?

This is the way I understand adjustments for state pension are normally done - with the code deducting a whole years value of pension but the application of the month one indicator meaning you only get taxed on it on a month-by-month basis going forward. 

An M1 indicator works on a non-cumulative basis so will only apply for each month separately, meaning that the correct tax wil lbe deducted to take account of you drawing your state pension from now until the end of the tax year.

Dazed_and_C0nfused

GrandmaStitch said:

I've just received my first State Pension payment and I work so pay tax via PAYE.  My SP starts on 22/11/22.  My tax code has been adjusted to reflect a reduction to my personal allowance by a full year of SP even though I will only receive 4 months of it in the tax year.   It leaves me with a tax free value of £10 for the whole year This means that I will overpay tax by approx £2500 by end of March. 

HMRC have assured me that I will get that back after I submit my tax return next June, so possibly by end of July I might have that money back.  I was also told that there is absolutely no way to have my tax code corrected in the current tax year because the value is dictated by DWP.   

This seems to be unfair and a backdoor way of getting more money into the HMRC coffers for approx 7 months.  Remember when the banks used to hold money for 3 days and it was eventually corrected to only a few hours? 

I am horrified by this and there are many people who work and don't submit personal tax returns who could miss out on recovering this Stealth Tax, please share with anyone who is claiming state pension this year or in the future.

You have totally misunderstood how this works.  Don't understand why HMRC couldn't explain this properly 🤔

The new tax code is only used from now until the end of the tax year, it isn't retrospective.  So each month you will pay the correct tax, there will be no refund due and certainly no excess tax deducted.

If you genuinely don't understand this and think you will overpay tax perhaps you could provide some figures to explain how you will overpay £2,500 across your next 3-4 pension payments?

Albermarle

I am horrified by this and there are many people who work and don't submit personal tax returns who could miss out on recovering this Stealth Tax
'Horrified' seems a bit strong when describing a few months delay in reclaiming some overpaid tax.

If someone does not fill in a tax return then their tax calculation is done automatically, and they will receive back any overpaid tax at some point later in the following tax year.

molerat

p00hsticks said:

Does your tax code have a M1 indicator on it ?

This. 

It most likely does which means your SP will be taxed at 1/12th of the annual pension each month and any small difference tidied up at the end of the year.  The other way of doing it would be to deduct the  part year amount and backdate it to April meaning you would take a big tax hit in the first month.  This way is as close as correct they can get.

Impecunious_2

Quarkrad said:

Finally spoke to HMRC.  What they are doing, in my case, is to reduce my personal allowance to 5584 and apply that to my private pension only - i.e. not applying anything to the state pension.  The effect of this, when I do the numbers, is the equivalent of keeping my private pension taxed at 20% and the additional state pension taxed at 20% - so I am happy,  My issue was sending me the change in tax code with no explanation of how it is all calculated.  There are various ways of doing it I guess but the method HMRC choose is to leave the state pension alone and take everything (tax wise) off the private pension.  Which amounts to what has been said above.  Thanks to all for helping me out.

Thanks for raising this and posting the update.  I've just found myself in the same situation, and was completely flummoxed.  HMRC really need to look at their opaque written communications!