First Year State Pension Tax Code

BigAlBlack

Although I retired early and have been drawing down regular amounts from my Private Pension, I have just received my first State Pension payment. This appears to have triggered a change in Tax code which has resulted in me being put on an emergency code because they have coded in a full years State Pension although I will only actually receive half over the next six months.
I called HMRC and they were very unhelpful and just kept saying that it was the way they work which does not seem right to me. I explained that I would only receive State Pension payments amounting to £5,487 and my Private Pension total for the year would be £8,206 so still below my allowances for the year of £13,750 (£12,500 + £1,250 Marriage Allowance).
Their calculation is £13,750 total allowances less £9,936, which is what I would receive in a full year, leaving a Tax free amount of £3,814, Tax code 381MX. This would presumably result in me paying Tax on £4,392 when I shouldn't be paying any Tax at all!
The Tax Officer I spoke to said this was correct and it would all be resolved when they did their Tax reconciliation for me when they received my P60s!
This doesn't seem right to me but can anyone give some advice on this please?

molerat

That is the normal way they do it and it usually works using the X suffix if you have been paying tax but your problem is that you have been taking well under your monthly tax allowance in pension.  It is hard work trying to get anyone at HMRC to understand how the tax system works and their stock answer seems to be "the computer says".  I had the first year pension problem last year but luckily for me they worked it differently and I was underpaying tax.

If you are taking that pension in equal monthly payments (are you ?) then you will be paying tax on £2190 which will be sorted at the end of the tax year.  If you can fund that extra £73 per month then it may be easier than banging your head against a wall trying to argue with them ! If not then you will need to push them to reduce your code by the £5.5K on a cumulative basis as the extra tax will cause you hardship.

NottinghamKnight

I'm not sure whether the HMRC procedure is correct but at worst you will be paying some extra tax for a few months which will then be refunded at the end of the tax year so it shouldn't be a big deal either way.

Dazed_and_C0nfused

BigAlBlack said:

Although I retired early and have been drawing down regular amounts from my Private Pension, I have just received my first State Pension payment. This appears to have triggered a change in Tax code which has resulted in me being put on an emergency code because they have coded in a full years State Pension although I will only actually receive half over the next six months.
I called HMRC and they were very unhelpful and just kept saying that it was the way they work which does not seem right to me. I explained that I would only receive State Pension payments amounting to £5,487 and my Private Pension total for the year would be £8,206 so still below my allowances for the year of £13,750 (£12,500 + £1,250 Marriage Allowance).
Their calculation is £13,750 total allowances less £9,936, which is what I would receive in a full year, leaving a Tax free amount of £3,814, Tax code 381MX. This would presumably result in me paying Tax on £4,392 when I shouldn't be paying any Tax at all!
The Tax Officer I spoke to said this was correct and it would all be resolved when they did their Tax reconciliation for me when they received my P60s!
This doesn't seem right to me but can anyone give some advice on this please?

That would normally be correct as tax works on an annual basis and as you have not paid any tax towards the tax due on the £5,487 in the first half of the tax year HMRC include the annualised amount of State Pension in your tax code and tell your employer/pension payer to use the new tax code on a non cumulative basis i.e. it isn't applied retrospectively back to April.

https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye76086

But based on your post you don't end up having any tax to pay so I would have expected them to include the actual State Pension of £5,487 and ask your employer/pension payer to operate it on a cumulative basis.

Based on your post you would have tax due of £238.60 (£1,193 x 20%) but this would be reduced to nil by the Marriage Allowance tax credit of £250 you are entitled to.

The first thing I would do is check your Personal Tax Account on gov.uk to see if HMRC have estimated your private pension income to be a similar amount to you.

This may be the ultimate root cause of the issue as it is notoriously difficult for HMRC to estimate income from draw down pensions as you can quite literally take what you want and change amounts willy nilly.

Although I retired early and have been drawing down regular amounts from my Private Pension