50% Tax Query on NHS Pension

Albermarle

Aki123 said:

Sorry - I mis-typed, her state pension is £17,391
She definitely only has the one NHS pension (she just worked as a laundry assistant part-time many years ago)
Mom's pension is paid in monthly - £1237.04
She does also get Attendance Allowance of £407 per month, which I've just remembered.

In simple terms she has a personal tax allowance of £12570.
She has taxable income quite a few thousand above that, so she is liable for 20%  tax on anything above £12570.
They are taking all the tax owed from her NHS pension, as they can not take if from the state pension, so it seems like a big % of the NHS pension is being taken .

Aki123

p00hsticks said:

Aki123 said:

Mom's pension is paid in monthly - £1237.04

If you are referring to her State Pension, then it will be paid four-weekly, rather than monthly, so 13 payments a year. Although that would only come to £16,081.52, not the £17,391 you mention earlier.
Regardless of that, either amount would be right at the top of what it was possible to get under the pre-2016 pension rules (for comparison the pre-2016 basic state pension is currently £169.50 a week, and your mum appears to be getting in excess of £300). This is presumably due to your mum (and/or your dad if she is widowed and inherited some state pension from him) being contracted in for much of their working lives.

State pension is taxable but tax is not deducted at source. As your mother is receiving more that her tax allowance of £12,570 a year then she will need to pay some tax. HMRCs first port of call to collect this tax is by deducting it from other taxable sources of income such as private pensions, which is what your mother is finding.

However I believe the rules are that the maximum pension companies are allowed to deduct in tax is 50% of the gross. This is what seems to be happening here, and may mean that there is further tax that your mother will be asked to apy - probably in a letter sent to her by HMRC aftrer the end of the tax year.

Hi, that's really useful, thank you.  My dad died last year, I don't believe he contracted out. Thanks so much for the explanation, it's a lot to get my head around!

Aki123

Albermarle said:

Aki123 said:

Sorry - I mis-typed, her state pension is £17,391
She definitely only has the one NHS pension (she just worked as a laundry assistant part-time many years ago)
Mom's pension is paid in monthly - £1237.04
She does also get Attendance Allowance of £407 per month, which I've just remembered.

In simple terms she has a personal tax allowance of £12570.
She has taxable income quite a few thousand above that, so she is liable for 20%  tax on anything above £12570.
They are taking all the tax owed from her NHS pension, as they can not take if from the state pension, so it seems like a big % of the NHS pension is being taken .

Brilliant, thanks very much for the explanation!

molerat

If that £1237 is the 4 weekly pre April then that will increase by around 6% to 8% from this month so comes close to the £17391 for her 24-25 amount.

£12570 - £17391 leaves a negative £4821 allowance thus a possible tax code of K482.  Another thing to bear in mind is that PAYE can only deduct a maximum of 50% of the gross payment so she may well find that she owes tax due to that restriction and may receive a simple assessment, AKA " a bill" mid 2025.

Aki123

molerat said:

If that £1237 is the 4 weekly pre April then that will increase by around 6% to 8% from this month so comes close to the £17391 for her 24-25 amount.

£12570 - £17391 leaves a negative £4821 allowance thus a possible tax code of K482.  Another thing to bear in mind is that PAYE can only deduct a maximum of 50% of the gross payment so she may well find that she owes tax due to that restriction and may receive a simple assessment, AKA " a bill" mid 2025.

Thank you so much for explaining this, so we'll look forward to another bill next year 

eastcorkram

I've never understood that rule about only being allowed to have 50% taken in tax. 

I'd prefer them to take what was due, even if it meant all of it .

badmemory

She has a K code.  That explains why she has been taxed exactly 50% of her NHS pension, as molerat says, as it is the maximum they can take.  I too would expect her to receive a simple assessment each summer with any additional tax payable, which will be due by the end of the following January.  So it is not an urgent need to pay it today sort of thing.  If they have already taken 50% of that income then that definitely suggests that there will be more due.

So the time scale is - End of tax year early April leaving some tax unpaid, then in the summer a simple assessment saying some tax is still due, then the next January that tax is payable.

xylophone

https://forums.moneysavingexpert.com/discussion/comment/80729523#Comment_80729523

Aki123

badmemory said:

She has a K code.  That explains why she has been taxed exactly 50% of her NHS pension, as molerat says, as it is the maximum they can take.  I too would expect her to receive a simple assessment each summer with any additional tax payable, which will be due by the end of the following January.  So it is not an urgent need to pay it today sort of thing.  If they have already taken 50% of that income then that definitely suggests that there will be more due.

So the time scale is - End of tax year early April leaving some tax unpaid, then in the summer a simple assessment saying some tax is still due, then the next January that tax is payable.

Brilliant, thanks very much for helping me to understand this!