Pension first payment, Tax code BR and future tax deductions?

darkovo

Hi, my relative has just received her first private pension payment after husband died, tax has been deducted at BR rate.

She has been receiving the standard state pension for some time, no other income is being received.

The recent letter from the private pension mentioned:

"Annual pension payment will be £3,839.52 a year."

"Your pension payment will be subject to income tax deductions (Pay As You Earn).
Your first pension instalment will be taxed using the rate of BR. BR means that tax will be deducted at the basic rate with no tax-free allowances. We will tell HMRC that you have started receiving this pension and they will then need to tell us if your tax code should change from BR. We will only change your tax code on receiving advice directly from HMRC.
Your tax affairs are confidential and you should therefore contact HMRC directly with any questions about the tax code being applied to this pension. It is only HMRC that can change your tax code or explain how it is calculated."

We will be contacting HMRC, but wonder if any tax should have to be paid at all by her from the pensions being received, I wouldn't have thought so, but we don't know how it all works as yet. I also expect the deducted tax will be refunded, but is this at the end of the tax year or just added to the next payment?

Many thanks

Dazed_and_C0nfused

darkovo said:

Hi, my relative has just received her first private pension payment after husband died, tax has been deducted at BR rate.

She has been receiving the standard state pension for some time, no other income is being received.

The recent letter from the private pension mentioned:

"Annual pension payment will be £3,839.52 a year."

"Your pension payment will be subject to income tax deductions (Pay As You Earn).
Your first pension instalment will be taxed using the rate of BR. BR means that tax will be deducted at the basic rate with no tax-free allowances. We will tell HMRC that you have started receiving this pension and they will then need to tell us if your tax code should change from BR. We will only change your tax code on receiving advice directly from HMRC.
Your tax affairs are confidential and you should therefore contact HMRC directly with any questions about the tax code being applied to this pension. It is only HMRC that can change your tax code or explain how it is calculated."

We will be contacting HMRC, but wonder if any tax should have to be paid at all by her from the pensions being received, I wouldn't have thought so, but we don't know how it all works as yet. I also expect the deducted tax will be refunded, but is this at the end of the tax year or just added to the next payment?

Many thanks

Once the pension company notify HMRC of the new pension her tax code should be automatically reviewed and a new code sent to the pension company.  Which will enable them to make any refund due the next time they pay her (after receipt of the new code).

Assuming you haven't omitted any pertinent information and that she gets the standard "new" State Pension her new code would likely be 196L so tax would only be due once she was being paid more than £1,969/year in pension.

Which is presumably only going to be the case in the next tax year?

NB.  Next year her code would drop to 106L due to the largish increase in State Pension.

If she receives the old "basic" State Pension then her code will be different but DWP should tell HMRC what her new State Pension award is if this changes due to the change in circumstances.

xylophone

She has been receiving the standard state pension for some time, 

What exactly do you mean by this?

Full Basic State Pension only?

Full New State Pension only?

Her husband has just died - did he reach SPA pre 6/4/16? He himself was in receipt of a state pension?

And when did she herself reach SPA?

Pat38493

To explain a bit further, the state pension counts as taxable income although it is paid out gross, and is (currently) below the annual allowance,

Therefore if she is receiving the full new state pension it will use up most of her annual tax allowance.  If this new private pension puts her over the annual allowance then there will be some tax due, but not at the BR rate.  If HMRC do things correctly it should get corrected automatically the following month.  I have made the same assumptions as dazed above in saying this.