Pensions taxable

PaulDesmond

Hi. I have found out that my private pension has been reduced and on contacting them I was told that I had to pay £17.60 a month tax. I was told that my tax code for the previous year was 890L and it has been reduced to9 208L that means I can only have £2,080 a year tax free.

Firstly, I was talking to a disgruntled pensioner, saying that everyone is up in arms about being taxed on the SP. I couldn’t understand that as the SP is below taxable. But when I am told that my tax code has gone down from 890L to 208L, I am even more confused so I thought you guys could explain the old and new system.

HappyHarry

The state pension is taxable, though it is paid gross. The tax on any private pensions would be adjusted to take account of this.

Example:
If you have a state pension  of £10,000pa, and a private pension of £8,000pa, then your total income would be £18,000. 
The personal allowance is £12,570, so your state pension would use £10,000 of this. This would mean that £2,570 of your private pension would be tax free and the rest of it would be taxable. In this example, your private pension would, have a tax code of 257L.

molerat

The state pension has always been taxable income and your tax code set against other income has always been reduced by the amount of state pension. Nothing new here at all, there is no old or new system as far as taxing the state pension is concerned.The freezing of the personal allowance and the large increase in the state pension has made it very noticeable this year.

There are going to be a lot more people dragged into the tax system in the coming couple of years and if inflation exceeds 7% this coming September those with just the full new state pension who have given their 10% tax allowance away could be receiving a tax bill at the end of 24-25.

Dazed_and_C0nfused

PaulDesmond said:

Hi. I have found out that my private pension has been reduced and on contacting them I was told that I had to pay £17.60 a month tax. I was told that my tax code for the previous year was 890L and it has been reduced to9 208L that means I can only have £2,080 a year tax free.

Firstly, I was talking to a disgruntled pensioner, saying that everyone is up in arms about being taxed on the SP. I couldn’t understand that as the SP is below taxable. But when I am told that my tax code has gone down from 890L to 208L, I am even more confused so I thought you guys could explain the old and new system.

Your tax code is almost certainly that low,  relatively speaking, because the State Pension is always paid in full with no tax deducted at source.

So if your total income is above the Personal Allowance all the tax will normally be deducted from your private pension.

The Personal Allowance didn't increase from 2022-23 to 2023-24 but a lot of peoples State Pension has increased by 10.1%.

So the State Pension continues to be paid in full whilst the extra tax comes out of your private pension.

PaulDesmond

Okay but I was told last year that the tax code given to my Merchant Navy pension officials has gone down from last year. 890L to 208L My Private pension didn't kick in untill november.

Has the pensioner got it wrong then. He said that the SP should not be taxable but it woulden't be as it is below the threshold. The only way I could work this out was that the SP was not used in the calculation at all. Has the SP always been included in the calculation.

xylophone

In your previous posts (late last year) you said

https://forums.moneysavingexpert.com/discussion/6398296/moving-from-oc-to-pension-and-effecting-council-tax

As I am now going onto state pension plus a private pension, 

https://forums.moneysavingexpert.com/discussion/comment/79588713/#Comment_79588713

My combined pensions would be ££12,684

This is higher than the standard personal allowance (£12,570 until 2028).

Your SP has increased and possibly your private pension has too.

The amount over your PA is taxable and because your SP is paid without deduction of tax, the tax due is taken from your private pension by  adjusting the tax code.

Dazed_and_C0nfused

Looks like last tax year was only part year for State Pension but is now full year so more tax will be payable as your annual income is much greater.

molerat

PaulDesmond said:

Okay but I was told last year that the tax code given to my Merchant Navy pension officials has gone down from last year. 890L to 208L My Private pension didn't kick in untill november.

Has the pensioner got it wrong then. He said that the SP should not be taxable but it woulden't be as it is below the threshold. The only way I could work this out was that the SP was not used in the calculation at all. Has the SP always been included in the calculation.

Yes to both.  It is your total income that counts so add them all up and anything above £12570 is taxable but the only way to deduct that tax is through your other pension(s).

PaulDesmond

Okay. I am not interested in the posting of last year. As molerat pointed out "There are going to be a lot more people dragged into the tax system." But the freesing of the thresold is going to upset a lot of pensioners who may note want to vote for the concervatives at the next election.  Nobody likes paying tax.

hildasmuriel

I like paying tax.  - makes me feel I'm doing my bit.

I don't like overpaying....... but if it's due correctly, I'm all for it

Pat38493

Maybe this is why the government is so keen to get inflation down - if inflation carries on at the same rate whilst allowances are frozen, the state pension will soon exceed the annual allowance and they will face another fine mess!