Tax position on this - any thoughts?

okydoky

My wife retired in November 2022 with earnings in the 22/23 year of £9500 - so no tax payable in the 22/23 tax year.
Her LGPS pension should have kicked in immediately but there seemed to be some sort of delay so that payments did not actually start until end of May 2023, when payment was made to cover the period from November last year to end of May 2023. The payment made was about £2000 as tax was charged at 20% on some sort of month one basis.
I understand I will be able to reclaim the tax paid but wonder if part of the payment will be allocated to the last tax year where she has headroom to have this tax free - or will it all be allocated to the 23/24 tax year thereby limiting the amount she can take from her SIPP this year!
Any thoughts on this please?

Dazed_and_C0nfused

Even if correct you may well be overcomplicating things.

What tax code is the pension payer using?

How much do you expect her next (taxable) pension payment to be?

xylophone

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim75020

okydoky

So she was taxed at 20% on her pension despite having no other earnings. State Pension does not kick in until July 2024. She does however have a SIPP waiting to go into drawdown and it is this I'm looking at in terms of the amount that can be withdrawn to stay within the Personal Allowance.( No other earnings of any significance).

Dazed_and_C0nfused

okydoky said:

So she was taxed at 20% on her pension despite having no other earnings. State Pension does not kick in until July 2024. She does however have a SIPP waiting to go into drawdown and it is this I'm looking at in terms of the amount that can be withdrawn to stay within the Personal Allowance.( No other earnings of any significance).

Chances are the pension company will automatically refund the tax deducted when they make the next payment.

She can check the tax code will have allocated to this new source of income on her Personal Tax Account.

She can ask HMRC to treat part of the payment as income from the previous tax year however I'm pretty sure this only applies to the income, not the tax, so depending on the amounts she might get a bill for 2022-23 from HMRC.

But this will enable more non savings non dividend income to be received before tax is owed in the current tax year.

@xylophone's link refers.

okydoky

Dazed_and_C0nfused said:

She can ask HMRC to treat part of the payment as income from the previous tax year however I'm pretty sure this only applies to the income, not the tax, so depending on the amounts she might get a bill for 2022-23 from HMRC.

Thank you but can you elaborate on this please? In particular I do not understand the bit about it only applying to the income, not the tax?!?

In our case the only other income in the 22/23 tax year was earnings of about £9.5k, so with the £1700 or so pension back payment, she is well within the personal allowance so should not be paying any tax at all?

Please can you clarify, thanks

Dazed_and_C0nfused

AIUI the income can be spread backwards but the tax remains a tax deduction for 2023-24.

It's what I think this line in the HMRC manual is alluding to.

Underpayments in the earlier years may be set-off against the resulting overpayment in the year of the lump sum payment.