Pension Tax Code

MrsCJ_Bandit

My 81 year old mother receives full state pension of £10,260 per year. I've been looking into savings tax as she has a couple of low paying ISA's and I want her to get the best return for her money. 
Her current tax code is 307L which seems low to me. 
I did help her with self assessments for a couple of years after she retired but she never earned enough to owe any tax. 
Any thoughts please? 

MrsCJ_Bandit

**update** this tax code is for the minute private pension she has not her state pension. 

However, brings up a further question on how to work out savings interest allowance with the 2 tax codes. 

NoMore

What two tax codes ? The state pension gets paid with no tax taken and as such any tax due is usually taken from other income, in this case her private pension. That's why the tax code is so low, most of the Tax free personal allowance is being used by the state pension.

@Dazed_and_C0nfused will be along shortly as they are very good at explaining tax.

Dazed_and_C0nfused

MrsCJ_Bandit said:

My 81 year old mother receives full state pension of £10,260 per year. I've been looking into savings tax as she has a couple of low paying ISA's and I want her to get the best return for her money. 
Her current tax code is 307L which seems low to me. 
I did help her with self assessments for a couple of years after she retired but she never earned enough to owe any tax. 
Any thoughts please? 

Firstly, are you certain £10,260 is the correct figure?  A lot of people have State Pension paid 4 weekly and seem to think multiplying that amount by 12 gives an annual amount.  But a 4 weekly amount needs to multiplied by 13.

And tax code 307L seems too high to me, not too low.

£12,570 less State Pension £10,260 could equal tax code allowances of 2310.  Which would be tax code 231L.

But to find out the answer you want you really need to provide more information.  How many pensions does she have, just two or is it more?  You mention two tax codes in your next post so I'm guessing she has at least 3 pensions.

How much is the PAYE pension income (ignoring State Pension) expected to be in this tax year?

Other than pensions and interest does she have any other taxable income?

mybestattempt

Your mother will have only one tax code which will deduct any tax due on both her state and private pensions.

If you check her notice of code for 2024/25 you will see that her personal allowance is reduced by the amount of her state pension to arrive at the code to be operated against her private pension.

For her the first £1000 of any taxable savings interest is taxed a 0%.

You may find this helpful:

https://www.gov.uk/apply-tax-free-interest-on-savings

Dazed_and_C0nfused

mybestattempt said:

Your mother will have only one tax code which will deduct any tax due on both her state and private pensions.

If you check her notice of code for 2024/25 you will see that her personal allowance is reduced by the amount of her state pension to arrive at the code to be operated against her private pension.

For her the first £1000 of any taxable savings interest is taxed a 0%.

You may find this helpful:

https://www.gov.uk/apply-tax-free-interest-on-savings

The highlighted bits are wrong.

If she has two PAYE pensions, say one from LGPS and one with Standard Life there would have to be two tax codes.

Personal Allowance doesn't get reduced by the State Pension, I suspect you mean tax code allowances.

Until we know the mothers non savings non dividend income it's impossible to say how much interest will be taxed at 0%.  It could be £1,000.  It could be £6,000.

mybestattempt

Dazed_and_C0nfused said:

mybestattempt said:

Your mother will have only one tax code which will deduct any tax due on both her state and private pensions.

If you check her notice of code for 2024/25 you will see that her personal allowance is reduced by the amount of her state pension to arrive at the code to be operated against her private pension.

For her the first £1000 of any taxable savings interest is taxed a 0%.

You may find this helpful:

https://www.gov.uk/apply-tax-free-interest-on-savings

The highlighted bits are wrong.

If she has two PAYE pensions, say one from LGPS and one with Standard Life there would have to be two tax codes.

Personal Allowance doesn't get reduced by the State Pension, I suspect you mean tax code allowances.

Until we know the mothers non savings non dividend income it's impossible to say how much interest will be taxed at 0%.  It could be £1,000.  It could be £6,000.

Apologies, but the OP only mentioned state pension and one private pension.

I  said reduced by the amount of state pension, perhaps I could have phrased it differently, but it would be clear what was happening if the OP looked at the coding notice.
 
The OP wanted to know about savings interest allowance, I believe what I said was correct; of course there maybe of be more than £1000 interest which doesn't attract income tax.

I don't normally comment on simple tax matters, I'll stick with the more interesting technical queries from now on.

xylophone

From the information given so far, the OP's mother appears to have (a) State Pension, (b) one  "minute" private pension, and  (c)  "two

low paying ISAs".

With regard to the state pension, if the figure is correct, the weekly figure is a little over £197 a week.

At her age, she would be on the old state pension scheme. The Basic OSP is £169.50.

There is therefore Additional SP of around £27 a week which may relate to her own entitlement (and/or inherited pension from a 

late spouse). 

With regard to the tax code applied to the "minute" private pension, it is possible that she has additional tax allowances?

For more informed answers, the OP would need to consult her mother's Increase in Benefit letter and her Notice of Coding 

and give more accurate information.

And with regard to the low rate on the (tax free) ISAs, there is no need for her to accept this.

https://www.thisismoney.co.uk/money/saving/article-1583864/Best-savings-rates-Isas-Cash-Isa-accounts-fixed-rate-Isas.html

Contact the chosen new provider (s) to arrange a transfer.

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MrsCJ_Bandit

Thanks everyone so far...

So her state pension is £789.20 4 weekly which I multiplied by 13 to get £10259.60. 
She only has her State Pension and one other private pension for which she has the tax code 307L (I did not realise the state pension doesn't trigger a tax code in itself, sorry).
The private pension is with Aviva and paid out £210.72 in total for the year (from p60 23-24). This has not changed since she retired. 

In savings she has 37k in S&S ISA, 16k in Cash ISA (2.9% til Jan 25) and 17k in standard savings account @ 5.1%. 

As far as we are aware she has no other allowances and she has no other income at all. 

molerat

A mentioned above, her tax code should be around 231 (£12570 - £10259 = £2311) so you would need to see her notice of coding or on line tax account to check the make up of the 307L.  It is of no real consequence to her Aviva pension though as that is well below the level of either tax code.  £17K at 5.1% will produce around £867 interest so well within her £1K personal savings allowance but even before that comes into effect she has another £7100 left from the combination of her remaining personal allowance and £5K starting rate for savings 0% allowance.

gazzaw1

I am due state pension this month, I have just received a new tax code because I will receive this pension, this is surely taxing the pension twice.