Tax Code

Hello,

I have just started to receive my state pension and HMRC has adjusted my tax code accordingly, but they’ve included something called an “Adjustment to Rate Band” in the calculation for my new tax code.

My old tax allowance was £12570 and HMRC has deducted my state pension amount £10600 and this Adjustment to Rate Band of £1824, leaving me with a tax-free amount of £146.

The deduction of my state pension I understand, but what is this “Adjustment to Rate Band”?

It seems to me I will end up paying more tax than I should be paying.

My income consists of a private pension, a flexible drawdown (tax paid at source) and now my state pension and I’m a basic rate taxpayer.

All tax due on my income to this point has been paid.


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Comments

  • It is because HMRC think you won't be liable to tax above the basic rate at your main job but will be overall so they have a BR (basic rate) code on the flexible drawdown pension as a D0 (40%) code isn't suitable as you have some basic rate band left at your private pension.

    The problem HMRC face is that a flexible drawdown pension is exactly what it says on the tin so they will estimate the pension they expect you to get from that source but only you know what you will actually take.

    If you don't think yo will be liable to higher rate overall check the estimates HMRC have used for each (non state) pension and adjust them as necessary via your Personal Tax Account.

    HMRC are interested in the taxable pension income which will be reflected on your P60 in due course.
  • [Deleted User]
    [Deleted User] Posts: 0
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    edited 10 December 2023 at 2:18PM
    Did you take any drawdowns which, if repeated throughout the year would make you a higher rate taxpayer? For example, if you drew down £5000 in April, HMRC may assume that this will occur each month and estimate your income from that source at £60000.

    Check your personal tax account to view HMRC estimates of your income this year.
  • badmemory
    badmemory Posts: 7,491
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    The only thing that comes to mind is that your new income takes you into the next rate band or will if you draw down as much as you have been doing before.  I'm sure someone in the know will be along & I look forward to reading what they have to say.
  • Albermarle
    Albermarle Posts: 21,041
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    In any case your tax code, is only a way for HMRC to try and get your tax about right.
    Once the tax year ends and the calculation for the year is done, you will get back any overpaid tax .
  • I've checked my tax account and HMRC's estimate of my total income for this tax year is only about £300 more than what my actual income will be.
    My actual income will be well below the higher rate threshold, so why HMRC think there's a chance I'll exceed it is beyond me.
    Anyway, my question has been answered and thsnks to those that responded.

  • meren said:
    I've checked my tax account and HMRC's estimate of my total income for this tax year is only about £300 more than what my actual income will be.
    My actual income will be well below the higher rate threshold, so why HMRC think there's a chance I'll exceed it is beyond me.
    Anyway, my question has been answered and thsnks to those that responded.

    I wonder if somehow the full annual State Pension has somehow been factored in for that part of the tax code calculation 🤔
  • The total amount of state pension I'll recieve this tax year is £3347.
    For the calculation of my new Tax Code HMRC has used the full Stste Pension amount of £10600.

  • badmemory
    badmemory Posts: 7,491
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    This does tend to happen.  HMRC can only count what the DWP tell them.  Correct the amount on your tax account.  I've been receiving my SP for over 10 years and the DWP haven't notified HMRC correctly once so far.  Bearing in mind that the first week of the tax year is normally at the old years rate.
  • meren said:
    The total amount of state pension I'll recieve this tax year is £3347.
    For the calculation of my new Tax Code HMRC has used the full Stste Pension amount of £10600.

    Assuming you get the standard new State Pension then that is correct as far as the deduction in your tax code is concerned as the tax code will be used on a non cumulative basis.

    But when determining any other adjustment the correct figure would be what you are entitled to (for State Pension what you receive in the current tax year is of no relevance for tax purposes)
  • meren said:
    The total amount of state pension I'll recieve this tax year is £3347.
    For the calculation of my new Tax Code HMRC has used the full Stste Pension amount of £10600.

    That’s correct - assuming your code is on a M1 basis. 

    Your state pension is paid at an annual rate of £10600 and this would be applied for the remainder of the tax year on a one-twelfth basis. 

    If the code does not have M1 or W1 after it that is an entirely different matter!
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