I don't understand the message relating to my new pension, help please

happyhero

Hi, I am 60 and just started receiving my BT pension. I received a small amount in January as my birthday was on the 22nd and so I have to wait to the end of February to get a full month of pension pay.

I have just received a message from HMRC advising me of a tax code change but this is the message I get when I log in (not clicking on any links in the email of course).

We changed your tax code on 17 January 2021

This section is Your tax code change

Why your tax code has changed

We changed this because:

We changed this because:

• your employment with HARGREAVES LANSDOWN ASSET MANAGEMENT LTD has ended
• you have a new private pension with BT PENSION SCHEME
• you now have 1 pension
• your Untaxed interest on savings and investments has been reduced from £4 to £1

Previous tax codes

HARGREAVES LANSDOWN ASSET MANAGEMENT LTD

Pension number: XXXXX

Your pension number is XXXXX.

From 6 April 2020

1249L

From 6 April 2020 to 16 January 2021 your tax code for HARGREAVES LANSDOWN ASSET MANAGEMENT LTD was 1249L

What 1249L means Understand what 1249L means

Current tax codes

BT PENSION SCHEME

Pension number: XXXXXXXX

Your pension number is XXXXXXXX.

From 17 January 2021

1249L

I have never worked for Hargreaves although I do have investments with them including an ISA and a SIPP so is that normal what they have done?

Why isn't my tax code 1250L?

And what does the bit about £4 to £1 mean, that makes no sense to me?

Any help appreciated.

AlanP_2

Were you taking pension income form the HL SIPP? If you were HMRC would have allocated a tax code to it as if they were your "employer" so that the correct tax can be taken using PAYE.

This allowance has now been allocated to BT Pension instead and hence anything taxable from HL SIPP will be taxed at 20% (Basic Rate basis).

Linton

As AlanP_2 says - it is normal for multiple income streams. 

The change from £4 to £1 seems to be due to your total income increasing causing a decrease in the amount of tax free interest permitted. 

Yu can check and modify how the tax codes are calculated through the online Tax Account.

molerat

It looks though as they have removed HL as an income source rather than allocating BR which means any payment will be taxed at 1250LX

Is the BT pension in excess of £12500 pa and have you taken or will you be taking pension funds from HL ?

dunstonh

When you take crystallised drawdown benefit (i.e. the 75% part) it is paid under a payroll system.   HMRC assume that anything paid via payroll is employment.    

Why isn't my tax code 1250L?

It appears HMRC believe you have £1 on untaxed interest that should be taxed.

Your PAYE code is normally allocated to your highest income.   So, this would suggest that the BT pension is greater than the HL drawdown.  So. the PAYE code has moved to BT with the HL pension being fully taxed.

happyhero

AlanP_2 said:

Were you taking pension income form the HL SIPP? If you were HMRC would have allocated a tax code to it as if they were your "employer" so that the correct tax can be taken using PAYE.

This allowance has now been allocated to BT Pension instead and hence anything taxable from HL SIPP will be taxed at 20% (Basic Rate basis).

Hi AlanP_2, Thank you for your help, yes I took adhoc income from my SIPP (trying to live off savings/investments  to certain extent) with HL and yes HL received a tax code for me a while back when I accessed the income from them.
So will HL know to just tax me at 20% for any income I take from the SIPP from now on?

happyhero

molerat said:

It looks though as they have removed HL as an income source rather than allocating BR which means any payment will be taxed at 1250LX

Is the BT pension in excess of £12500 pa and have you taken or will you be taking pension funds from HL ?

Thank you molerat for your help. My BT pension will be about £18,000/year gross.
Obviously as I have just started this BT pension I wont receive much of the yearly income in 2020/21 tax year (little bit in January, then February and March full months).
Will the tax automatically be taken off this before I receive it?
I try as much as possible not to take any income from my HL SIPP for now but I have and will access income from here when I need to.

happyhero

Linton said:

As AlanP_2 says - it is normal for multiple income streams. 

The change from £4 to £1 seems to be due to your total income increasing causing a decrease in the amount of tax free interest permitted. My Knowledge on saving was something to do with being able to receive £1000 worth of interest before interest got taxed.

Yu can check and modify how the tax codes are calculated through the online Tax Account.

Thank you Linton for your help. Can you elaborate more on this £4 to £1, what does in actually mean will happen for me in basic terms?

happyhero

Out of interest now that I am receiving a regular income, am I right in thinking I should shift some of my wifes (marriage tax allowance) allowance to me?
Am I right in thinking it will alter my code doing this?
If I am right about the above I am thinking of doing it in 2021/22 when I will actually receive enough income to get past the £12500 personal tax allowance. 
Wife's (school catering manager) income is fairly steady at £10,500 every year.

molerat

If she will earn less than £11250, £11313 next year, then it is a no brainer to do so as it will save you £250 in tax but you don't do anything - she does it.

As for your tax codes you need to look at what your income is this year from both BT & HL, especially if you wish to take more from HL.

The £4 to £1 will make no difference to you in reality as it is just one of those silly admin things HMRC do to overcomplicate things.  All it has done is decreased the amount of tax deducted from your other source of income, if you don't pay tax no difference !

Albermarle

 Can you elaborate more on this £4 to £1, w

Just ignore it as it is such a small amount .