Tax bracket when retiring

Hammer128

Hi
I am currently in the 40% tax bracket with a salary including overtime of around £90000
I am considering retirement in January 2022 , by which time my earnings would be around 65-70k.
My pension will be £40k , Would I have to pay 40% on any of this or would I drop into the 20% bracket. I am PAYE.
If so would it be better to retire in new April and wait for new tax year.
Thanks

tacpot12

If you wait until the start of the new tax year, you won't pay 40% tax on your pension income. (If your pension income is £40K pa, your monthly income will be  abot £2,875 after tax and assuming you have no other income)

If you start to take your pension in a tax year where you have already earned £65k by January, you will pay 40% income tax on your pension income.

If you have cash savings, you could use these to cover the gap between your end date and 5th April 2022 to avoid paying any more tax than you need to. 

getmore4less

What sort of pension?

What benefit is there in delaying.

3 months taxed is better than 3 months of nothing if delayed does not change the numbers to benefit from not getting the money.

chrisbur

You have to understand that PAYE is a system that continually corrects itself.  You get allowances given each month and if these allowance result in changes to the tax band level the tax you pay will be corrected. So if you retire before the end of the tax year....
Each tax month after the tax month you get your final salary you will get a tax free allowance (this will depend on your tax code ) and an allowance at 20% tax   The following is a rough calculation and assumes a tax code of 1257L
You get a tax free allowance of £1047 and a 20% allowance of £3142 these allowances add up to £4189
Your pension is £3334 so this falls within the tax free plus 20% allowance.
You are also left with some 20% allowance unused so this would then be set against your 40% that you had previously paid before you retired.  This 40% tax would be converted to 20% tax and would then reduce the amount of 20% tax you paid on your pension.

Edit  Very quick and rough calculation to show this tax correction assuming standard tax code no other taxable income and 70000 to month 10 and then 3334 pension in month 11 tax would be about 286 instead of 457 if there was no correction.

The_Fat_Controller

Retire as soon as you can, take your pension and enjoy life !

Don't fret over 4 months of tax.

If you have a tax code now of anything other than the basic, do check what code is allocated for the next tax year.