Pensions and tax codes.

eastcorkram · 13 June at 12:13PM

I'm trying to figure out how this will work in reality. I'm just using very rounded numbers for now!

I should have two state pensions from two countries. This should come to £17k a year. I also have a DB, that will pay £4k a year. I also have 2 SIPPS.

Now, as the state pension is taxable, but paid gross, I believe my tax code will be reduced by the £17k. My code is currently 647L.

It's that, due to BIK, which will stop once I stop working. Can I inform the HMRC , immediately when I stop, to speed up the change back to 1257L ??

Even if I do that, it still leaves me with a code of K443.

It's my understanding that with a K code, even if I had zero income for a year, I'd still owe tax. I assume the DB people get told to tax my pension using K443. Hopefully they get told this straight away. If they do, roughly what will I get nett, from the 4k per year.

Then, if I want to drawdown say 3k a year from a SIPP, How much do I request, if I want 3k nett?

Do the SIPP people get told the same k443 code as the DB people?

molerat · 13 June at 1:53PM

The tax code may be split between the different pension providers as necessary. With a K443 tax code and a £4K income you will be taxed on £8420 paying £1684 tax leaving £2316 net. Likely the SIPP would be given a BR code. To get £3K in your pocket from the SIPP you would need to withdraw £3529, £882 tax free with £2647 taxable leaving £2117 + the £882 = £3K

eastcorkram · 13 June at 2:09PM

molerat said:

The tax code may be split between the different pension providers as necessary. With a K443 tax code and a £4K income you will be taxed on £8420 paying £1684 tax. Likely the SIPP would be given a BR code. To get £3K in your pocket you would need to withdraw £3529, £882 tax free with £2647 taxable leaving £2117 + the £882 = £3K

That's brilliant. Thank you. I assume with that DC calculation, it's based on me not having taken the 25% tax free at the start?

Am I right in thinking that I should contact HMRC myself to inform them I'm stopping work? I'm trying to avoid paying too little tax, and then having to sort out the mess afterwards. Do I have to inform HMRC about the DB scheme and the SIPP?

If they start paying those using 1257L , because they know no different, I'm going to be paying way too little tax.

sheslookinhot · 13 June at 2:13PM

Your employer will notify HMRC when your employment status changes. No need for you to do anything.

molerat · 13 June at 2:16PM

That's brilliant. Thank you. I assume with that DC calculation, it's based on me not having taken the 25% tax free at the start?

Yes. If you had already taken the tax free you would need to withdraw £3750.

Pre empting / forewarning HMRC rarely goes well. Leave them to get on with it in their own time only getting involved if it goes wrong. If you pay too little tax it is a tax free loan.

pinnks · 13 June at 2:38PM

Are you sure the non-UK state pension will be taxed in the UK? The German one is not; many others are...

eastcorkram · 13 June at 2:42PM

sheslookinhot said:

Your employer will notify HMRC when your employment status changes. No need for you to do anything.

If that turns out to be the general advice, then that's what I'll do, BUT, knowing what my employer is like, and my dealings with DWP , HMRC, Willis Towers Watson, HL, and Fidelity in the past, all I can see is a complete cluster mess.

squirrelpie · 13 June at 5:22PM

pinnks said:

Are you sure the non-UK state pension will be taxed in the UK? The German one is not; many others are...

See e.g. for confirmation https://community.hmrc.gov.uk/customerforums/pt/4fac3789-fbb8-ed11-9ac4-00155d9771aa

and https://www.litrg.org.uk/tax-guides/migrants/what-uk-tax-do-i-pay-my-overseas-pension for more background

xylophone · 13 June at 5:25PM

Will you need to register for self assessment (if you are not already registered)?

eastcorkram · 13 June at 5:30PM

xylophone said:

Will you need to register for self assessment (if you are not already registered)?

I have no idea. Not something I've ever had to do in the last 46 years of employment.

badmemory · 13 June at 5:45PM

Please bear in mind for the future that the K code means they can only take 50% of that income in tax. It may not be relevant now but with tax allowances not increasing it could do in the future. They may insist that you do simple assessment rather than filing self assessment. If so please check their figures VERY carefully.

Pensions and tax codes.

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