New State Pension & Tax

Gummomarx

My state pension started on 5 July 2023 and now I must begin paying tax as I already have a works pension.

The problem is that HMRC estimate my tax up to 5 April 2024 at £1,143 while my calculations show £883 based on my exact income.  I don't know why HMRC's is an estimate since they have the precise amounts for both pensions.

PS: The waiting-time on the phone-line is 40 minutes.

comeandgo

Why is your personal allowance so high?

Gummomarx

I have the wife's 1260 - she doesn't pay tax.

KathysBoy

It seems to me that their calculation is based on the increased tax allowance. I assume this is the marriage allowance you’re allowed to transfer. 

Gummomarx

Basic allowance 12570 plus 1260 from the wife = 13830.

molerat

Your on line tax account should show how they have worked everything out. it will also show their calculation for SP which I suspect will be more than your calculation.  I make the tax due on your calculation of income using 1257 £1133.40 so I expect the extra tax will come from their pension amount.  What tax code have they set against the pension and how have they worked it out ?  The first year of SP usually shows up some weird numbers to get the right answer.

p00hsticks

Are you sure you don't have an M1 qualifier against the tax code ?

This topic comes up on a fairly regular basis and I seem to recall the explanation is that in the first year of claiming a state pension, in the first month of your claim  HMRC will adjust your tax code by a full years worth of state pension but add an M1 (non-cumulative) qualifier that means it will only apply for the months that you are actually claiming. 

Gummomarx

Here's the code:

molerat

So you will be paying £102 pm tax.  Over 9 months = £918, not too far off your £883 and likely accounted for by the actual SP amount.  I make it 39 weeks which is £7950 SP so £18421 annual income which gives £916.20 tax.

p00hsticks

Gummomarx said:

Here's the code:

So, as I suggested the code is going to be applied on a Month 1  basis (as indicated by the X) - which means that the tax is calculated afresh each month, without any reference to what has gone before.

So once it is applied to your works pension, each month your tax allowance of 13830 will effectively be divided by 12 and then reduced by 1/12th of your annual state pension  amount. 

This should ensure that you end up paying the correct amount of tax each month.   

[Deleted User]

p00hsticks said:

Gummomarx said:

Here's the code:

So, as I suggested the code is going to be applied on a Month 1  basis (as indicated by the X) - which means that the tax is calculated afresh each month, without any reference to what has gone before.

So once it is applied to your works pension, each month your tax allowance of 13830 will effectively be divided by 12 and then reduced by 1/12th of your annual state pension  amount. 

This should ensure that you end up paying the correct amount of tax each month.   

Spot on - from the time the state pension is payable each month is taxed individually - one months salary plus one months pension. 

From April 2024 the ‘x’ will disappear. 

Also the state pension total is based on weekly not four weekly amounts. You would be entitled to a weekly payment on 3rd April 2024 for example even though this is not paid until 24th April.