Pensions and Self Assessment

fireworkskaj

Hi all, I wasn't sure where to put this, I hope that's okay.

My mum is due to retire this year, and will start receiving pension (we haven't had a forecast, so not sure what amount), and we are also in the middle of sorting out her entitlement to my late father's private pensions (I believe she will be entitled to half).

She owns a property which is let out, for which she does self-assessment. She gave up her self employment work at the start of the first lockdown and because of that and the rent being under the threshold, she paid no tax on her last self-assessment. She will do another this January for 21/22 and will again probably pay no tax.

However, for this tax year 22/23 she will be in receipt of the income, pension, and eventually private pension.

How does this all work with her tax? Does she just declare the pension and private pensions on her self-assessment and pay her tax then? Can she pay it PAYE? 

zagfles

The private pension will likely be paid under PAYE, the state pension gets paid gross, she'll need to declare both together with any other income eg rent, interest etc, and tax will be assessed on the total. Obviously tax paid via PAYE will get taken off the tax bill. Ideally the tax code for the private pension should collect the approx the right amount of tax if the other income (state pension, rent etc) is known.

fireworkskaj

zagfles said:

The private pension will likely be paid under PAYE, the state pension gets paid gross, she'll need to declare both together with any other income eg rent, interest etc, and tax will be assessed on the total. Obviously tax paid via PAYE will get taken off the tax bill. Ideally the tax code for the private pension should collect the approx the right amount of tax if the other income (state pension, rent etc) is known.

Thank you for the reply. 

If the private pension is paid out before her state pension, will the tax code be correct? 

She does have an accountant, who prepares her letting statements and self assessment. Obviously, we will be talking to him as she is about to have 3 new sources of income, the 2 private pensions (which will probably only amount to 4.8k pa), and her state pension but I'm trying to get my head round it all for our own understanding and planning for tax so everything is correct.

Dazed_and_C0nfused

The private pension(s) may start being paid using the emergency tax code of 1257L so no tax will be deducted on the first payment.

But HMRC should then issue an updated tax code to take into account the State Pension so the code will be reduced.  Depending on the amounts she may have a normal code, say 400L, on one pension and either any spare tax code allowances, say code 50T, or BR (basic rate) at the second pension.

At the end of the day it's the Self Assessment return which finalises things.  You just need to make sure the accountant has all the details to include on the return.  Including any tax deducted at source under PAYE.

Once thing to consider is that Self Assessment return include options to either

a) pay what is due via the following years tax code i.e. you file a return for 2022:23 during 2023:24 and in some instances the tax owed can be included in the 2024:25 tax code

b) include things like rental income in the tax code so more tax is paid during the year leaving less to pay via Self Assessment

You may find life simpler and things easier to follow if you make sure the accountant doesn't opt for either.

You can the questions on page TC2 of the paper SA110 on gov.uk.

https://www.gov.uk/government/publications/self-assessment-tax-calculation-summary-sa110