Partial Retirement- do you have different tax codes for Pension/Salary

jimi_man

Oh and you will be slightly better off, as there is big saving in NI so you’ll end up with an extra £250 or so a month. 

drummersdale

Thanks @jimi_man yes I’m hoping I’ve done my numbers correctly so that I avoid abatement. Part of the reasoning behind the partial retirement is that having accumulated 40 and a half years of CS pension by August it seems that one consequence of no NI on my pension would hopefully mean I will be at least no worse off and as you suggest, perhaps a little better off - whilst only working 2.5 days a week. Seems too good to be true!

Nebulous2

drummersdale said:

Thanks @jimi_man yes I’m hoping I’ve done my numbers correctly so that I avoid abatement. Part of the reasoning behind the partial retirement is that having accumulated 40 and a half years of CS pension by August it seems that one consequence of no NI on my pension would hopefully mean I will be at least no worse off and as you suggest, perhaps a little better off - whilst only working 2.5 days a week. Seems too good to be true!

It should all be good. I've an LGPS pension slightly less than yours, and a part-time job with the NHS earning slightly more than you are saying last year. Gross is similar to my previous year - but net is higher, I had pension contributions for LGPS as well that no longer apply. Its a good way to psychologically adjust to not working.  As I moved from LGPS to NHS abatement doesn't apply. 

Nebulous2

jimi_man said:

Hi. I am in exactly the same position. The problem comes because you’ll be an HR tax payer, so you end up paying too much tax all the time, though it does eventually balance the following year. 

I use all my personal allowance on my pension (on the basis that it will be the case when I give up work). Then on all the earned income I use a BR tax code. Then everything over the HR limit I pay into a SIPP to bring it down to just under. 

Personally I cannot see the point in splitting your personal allowance over the two incomes. 

Every year at SA time, HMRC adjust my tax code to something ridiculous because they don’t understand how the pension payments work and think I’ll be earning too much under a BR code, but it’s easy enough to go onto your HMRC account and adjust it back to normal by artificially reducing your income. 

I find it better to take a proactive approach to it, rather than let HMRC do it as they don’t really like non-standard situations such as this. 

How do you notify them about the SIPP?  I don't need to do a self-assessment, have just notified them a reduced estimated salary for this year - I intend working less hours, but couldn't find a way to tell them about the money I paid into a SIPP last year? The website appears to say I need to phone them. 

Dazed_and_C0nfused

Nebulous2 said:

jimi_man said:

Hi. I am in exactly the same position. The problem comes because you’ll be an HR tax payer, so you end up paying too much tax all the time, though it does eventually balance the following year. 

I use all my personal allowance on my pension (on the basis that it will be the case when I give up work). Then on all the earned income I use a BR tax code. Then everything over the HR limit I pay into a SIPP to bring it down to just under. 

Personally I cannot see the point in splitting your personal allowance over the two incomes. 

Every year at SA time, HMRC adjust my tax code to something ridiculous because they don’t understand how the pension payments work and think I’ll be earning too much under a BR code, but it’s easy enough to go onto your HMRC account and adjust it back to normal by artificially reducing your income. 

I find it better to take a proactive approach to it, rather than let HMRC do it as they don’t really like non-standard situations such as this. 

How do you notify them about the SIPP?  I don't need to do a self-assessment, have just notified them a reduced estimated salary for this year - I intend working less hours, but couldn't find a way to tell them about the money I paid into a SIPP last year? The website appears to say I need to phone them. 

You can either phone or send the details in writing.

But you only need to bother telling them if you are liable to intermediate rate (Scottish resident) or higher rate tax.  If not then the contributions are highly unlikely to have any impact on your tax position.

Nebulous2

Dazed_and_C0nfused said:

Nebulous2 said:

jimi_man said:

Hi. I am in exactly the same position. The problem comes because you’ll be an HR tax payer, so you end up paying too much tax all the time, though it does eventually balance the following year. 

I use all my personal allowance on my pension (on the basis that it will be the case when I give up work). Then on all the earned income I use a BR tax code. Then everything over the HR limit I pay into a SIPP to bring it down to just under. 

Personally I cannot see the point in splitting your personal allowance over the two incomes. 

Every year at SA time, HMRC adjust my tax code to something ridiculous because they don’t understand how the pension payments work and think I’ll be earning too much under a BR code, but it’s easy enough to go onto your HMRC account and adjust it back to normal by artificially reducing your income. 

I find it better to take a proactive approach to it, rather than let HMRC do it as they don’t really like non-standard situations such as this. 

How do you notify them about the SIPP?  I don't need to do a self-assessment, have just notified them a reduced estimated salary for this year - I intend working less hours, but couldn't find a way to tell them about the money I paid into a SIPP last year? The website appears to say I need to phone them. 

You can either phone or send the details in writing.

But you only need to bother telling them if you are liable to intermediate rate (Scottish resident) or higher rate tax.  If not then the contributions are highly unlikely to have any impact on your tax position.

Thanks. I hit higher tax - Scottish resident, last tax year, and they curtailed my tax code in the last two months of the year.  It took them a while to work out I was going to be over. They've also given me a tax code of 768 for my pension this year - but I hope having reduced my estimate of earnings this year will bring that back up. 

I can put in my professional fees online, I had expected that I could put in my SIPP as well. 

badmemory

I agree with those above who suggest having your full personal allowance against your pension.  The reason - your pension is going to continue & no action is going to be required by you to keep your financial affairs in order.  Things can happen in our lives that divert our attention!

zagfles

badmemory said:

I agree with those above who suggest having your full personal allowance against your pension.  The reason - your pension is going to continue & no action is going to be required by you to keep your financial affairs in order.  Things can happen in our lives that divert our attention!

That's assuming that your pension is enough to use up all your personal allowance of course. Otherwise you'll pay too much tax.

Dazed_and_C0nfused

zagfles said:

badmemory said:

I agree with those above who suggest having your full personal allowance against your pension.  The reason - your pension is going to continue & no action is going to be required by you to keep your financial affairs in order.  Things can happen in our lives that divert our attention!

That's assuming that your pension is enough to use up all your personal allowance of course. Otherwise you'll pay too much tax.

Although in that situation HMRC are unlikely to allow say 1257L and BR codes (against a second pension or job).

They would automatically allocate any unused tax code allowances to the second source of (PAYE) income.

For example main pension is estimated at £11,500 = tax code 1150L

Second pension or job is estimated at £5,000 = tax code 107T

All the above assumes State Pension is not yet being paid.

drummersdale

I expect my pension to be in the region of £24-£25k per annum so definitely above the tax allowance and salary (via PAYE) to be £26,500 initially (with the occasional 1-2% civil service pay rise). I don’t think Civil Service pensions have a cap so am expecting next years uplift to be reasonable based on this Septembers CPI rate - which I assume will be in the region of 7 or 8% - although it’s a moot point if the cost of living continues to rise. State pension another 7 years away.