2024/5 Personal Tax Allowance

Roystonlock

Is it just me, or does the fact that my state pension exceeds my tax allowance just means I pay much more tax. HMRC says the negative amount is added to my other source of income. I took this to mean exactly that! Not so, it’s a figure on paper only. If they increased the allowance to £25000 they would clear the national debt.

eskbanker

Roystonlock said:

Is it just me, or does the fact that my state pension exceeds my tax allowance just means I pay much more tax. HMRC says the negative amount is added to my other source of income.

Your income tax liability is based on total income, i.e. state pension plus other sources, but because the former is always paid gross, that does mean that all tax has to be recovered from the other source if it pays via PAYE, so your PAYE tax coding will have a negative adjustment to a lower figure than the usual 1257 if your state pension exceeds £12,570, even though your actual personal allowance remains at £12,570.

Roystonlock said:

I took this to mean exactly that! Not so, it’s a figure on paper only. If they increased the allowance to £25000 they would clear the national debt.

I don't understand what any of that means?

Albermarle

eskbanker said:

Roystonlock said:

Is it just me, or does the fact that my state pension exceeds my tax allowance just means I pay much more tax. HMRC says the negative amount is added to my other source of income.

Your income tax liability is based on total income, i.e. state pension plus other sources, but because the former is always paid gross, that does mean that all tax has to be recovered from the other source if it pays via PAYE, so your PAYE tax coding will have a negative adjustment to a lower figure than the usual 1257 if your state pension exceeds £12,570, even though your actual personal allowance remains at £12,570.

Roystonlock said:

I took this to mean exactly that! Not so, it’s a figure on paper only. If they increased the allowance to £25000 they would clear the national debt.

I don't understand what any of that means?

No, neither did I .

eskbanker

Albermarle said:

eskbanker said:

Roystonlock said:

Is it just me, or does the fact that my state pension exceeds my tax allowance just means I pay much more tax. HMRC says the negative amount is added to my other source of income.

Your income tax liability is based on total income, i.e. state pension plus other sources, but because the former is always paid gross, that does mean that all tax has to be recovered from the other source if it pays via PAYE, so your PAYE tax coding will have a negative adjustment to a lower figure than the usual 1257 if your state pension exceeds £12,570, even though your actual personal allowance remains at £12,570.

Roystonlock said:

I took this to mean exactly that! Not so, it’s a figure on paper only. If they increased the allowance to £25000 they would clear the national debt.

I don't understand what any of that means?

No, neither did I .

I think OP might be the latest poster not to understand the distinction between 'personal allowance' and 'adjusted figure used on PAYE coding notice', but the final comment makes no sense at all!

marlot

Roystonlock said:

Is it just me, or does the fact that my state pension exceeds my tax allowance just means I pay much more tax. HMRC says the negative amount is added to my other source of income. I took this to mean exactly that! Not so, it’s a figure on paper only. If they increased the allowance to £25000 they would clear the national debt.

State pension is taxable.  If it is more than your tax allowance, then you'd expect them to deduct the tax, right?

Well actually no, they don't have the ability to do that, so they get the missing tax by over-taxing some any other sources of income you have.

TadleyBaggie

Roystonlock said:

If they increased the allowance to £25000 they would clear the national debt.

Not sure by reducing the amount of tax collected, how this would clear the national debt? 

You are Kwasi Kwarteng and I claim my £5....

Ferro

TadleyBaggie said:

Roystonlock said:

If they increased the allowance to £25000 they would clear the national debt.

Not sure by reducing the amount of tax collected, how this would clear the national debt? 

You are Kwasi Kwarteng and I claim my £5....

A memorable first post though!

xylophone

https://www.gov.uk/tax-on-pension/how-your-tax-is-paid

Suppose a person with State Pension of £15,000 and another  pension/salary of £20,000.

Total income £35,000. He is a basic rate tax payer.

Tax owed £4,486.

The SP is paid gross so all the tax due must be taken from the other pension/salary.

 He might be given a tax code of K243. This tells his pension provider/employer to count this income as if it were £2,430 higher (the amount over his £12,570 Personal Allowance) when calculating how much tax to take out of it. 

20% of £22,430 = £4,486.



  Whatever tax is owed,  no more than half of the pre-tax pay can be taken out because of a K tax code.