Tax code on retiring

SiliconChip

I have a question that I'd like opinions on and an assumption that I'd like to have checked.

At the end of July I'll be leaving work and retiring, a couple of years before I reach State Pension Age in November 2024.

I've had my P45, Tax code is 1257L, Total pay to date (month 4) £6,843 typo corrected to £6,483, Total tax to date £458.

I already receive one DB pension of £5,850 pa, currently taxed at BR.

From August I'll be paid the DB pension from my current job of £5,332 (gross for 8 months of 2022/3 will be £3,554).

Is there an optimum allocation of my tax code between the two pensions, or is it just best to cover one pension exactly (e.g. 585L on the £5,850) and assign the remainder to the other one? Can I do this through my Personal Tax Account or do I need to speak to HMRC?

I'm also in the fortunate position of having significantly greater savings this year following an inheritance, and my current guess on interest to be earned in 2022/3 is around £2,380 (excluding cash ISA and Premium Bond winnings). My estimated other income from employment and pensions for 2022/3 is £15,887, which I think gives me a starting rate for savings of £1,683. With the £1,000 Personal Savings Allowance I believe that means that I won't have any tax to pay on my savings interest, assuming my guess on earnings is approximately correct. Am I right, or have I misunderstood how tax on savings interest works?

Dazed_and_C0nfused

SiliconChip said:

I have a question that I'd like opinions on and an assumption that I'd like to have checked.

At the end of July I'll be leaving work and retiring, a couple of years before I reach State Pension Age in November 2024.

I've had my P45, Tax code is 1257L, Total pay to date (month 4) £6,843, Total tax to date £458.

I already receive one DB pension of £5,850 pa, currently taxed at BR.

From August I'll be paid the DB pension from my current job of £5,332 (gross for 8 months of 2022/3 will be £3,554).

Is there an optimum allocation of my tax code between the two pensions, or is it just best to cover one pension exactly (e.g. 585L on the £5,850) and assign the remainder to the other one? Can I do this through my Personal Tax Account or do I need to speak to HMRC?

I'm also in the fortunate position of having significantly greater savings this year following an inheritance, and my current guess on interest to be earned in 2022/3 is around £2,380 (excluding cash ISA and Premium Bond winnings). My estimated other income from employment and pensions for 2022/3 is £15,887, which I think gives me a starting rate for savings of £1,683. With the £1,000 Personal Savings Allowance I believe that means that I won't have any tax to pay on my savings interest, assuming my guess on earnings is approximately correct. Am I right, or have I misunderstood how tax on savings interest works?

£6,843 + £5,850 + £3,554 = £16,247.

Where are getting £15,887 from?

Tax codes in this tax year may be slightly more complicated.

Albermarle

Is there an optimum allocation of my tax code between the two pensions, or is it just best to cover one pension exactly (e.g. 585L on the £5,850) and assign the remainder to the other one? Can I do this through my Personal Tax Account or do I need to speak to HMRC?

You will pay the same tax in the end whichever way you do it.

Regarding the DB pension to be paid in August. I do not think you can get a tax code allocated to it, until it actually starts in payment. HMRC will then give the pension provider a tax code, which may well be incorrect. Then you can decide how you want them allocated in future.

If you pay too much or too little tax in 22/23 ( which is likely with the different changes happening) then it will be resolved automatically later in 2023, when the final calculation for 22/23 is completed.

Later when you get the state pension, that is also taxable but no tax will be taken from it. It will be taken from your other income via an adjustment to the tax code(s)

SiliconChip

Dazed_and_C0nfused said:

SiliconChip said:

I have a question that I'd like opinions on and an assumption that I'd like to have checked.

At the end of July I'll be leaving work and retiring, a couple of years before I reach State Pension Age in November 2024.

I've had my P45, Tax code is 1257L, Total pay to date (month 4) £6,843, Total tax to date £458.

I already receive one DB pension of £5,850 pa, currently taxed at BR.

From August I'll be paid the DB pension from my current job of £5,332 (gross for 8 months of 2022/3 will be £3,554).

Is there an optimum allocation of my tax code between the two pensions, or is it just best to cover one pension exactly (e.g. 585L on the £5,850) and assign the remainder to the other one? Can I do this through my Personal Tax Account or do I need to speak to HMRC?

I'm also in the fortunate position of having significantly greater savings this year following an inheritance, and my current guess on interest to be earned in 2022/3 is around £2,380 (excluding cash ISA and Premium Bond winnings). My estimated other income from employment and pensions for 2022/3 is £15,887, which I think gives me a starting rate for savings of £1,683. With the £1,000 Personal Savings Allowance I believe that means that I won't have any tax to pay on my savings interest, assuming my guess on earnings is approximately correct. Am I right, or have I misunderstood how tax on savings interest works?

£6,843 + £5,850 + £3,554 = £16,247.

Where are getting £15,887 from?

Tax codes in this tax year may be slightly more complicated.

Typo in the pay to date, should have been £6,483, changed in the OP now.

SiliconChip

Albermarle said:

Is there an optimum allocation of my tax code between the two pensions, or is it just best to cover one pension exactly (e.g. 585L on the £5,850) and assign the remainder to the other one? Can I do this through my Personal Tax Account or do I need to speak to HMRC?

You will pay the same tax in the end whichever way you do it.

Regarding the DB pension to be paid in August. I do not think you can get a tax code allocated to it, until it actually starts in payment. HMRC will then give the pension provider a tax code, which may well be incorrect. Then you can decide how you want them allocated in future.

If you pay too much or too little tax in 22/23 ( which is likely with the different changes happening) then it will be resolved automatically later in 2023, when the final calculation for 22/23 is completed.

Later when you get the state pension, that is also taxable but no tax will be taken from it. It will be taken from your other income via an adjustment to the tax code(s)

Yes, I'm not expecting to be able to do anything about the reallocation of tax codes until after the new pension is paid, which should be some time in August but I don't know yet what date that will be.

Presumably the automatic resolution you refer to will be via a P800, unless HMRC decide that a full return is required.

I know about the tax treatment of state pension so I'm expecting 4 years of tax code confusion: 22/23 with salary and 2 pensions, 23/24 with 2 pensions, and 24/25 2 pensions plus state pension for part of the year, then 25/26 onwards with 2 pensions and state pension for the whole period.