Pensioner Taxation

Triumph13

The fundamental problem here is the lack of any explanation of what to enter into the boxes on the gov.uk tax calculator.  It is a very simple tool and only calculates the tax for one particular job, not for all your income streams put together.  What it fails to make clear enough is that you should ONLY ENTER THE INCOME FOR THAT JOB.

The tax calculation OP posted is exactly what you would get if you had income of £39k FROM THAT JOB / PENSION and only £380 of tax allowance, because the rest has already been used up on another income stream.

What OP should have done is enter the gross income figure as ONLY the income from his private pension ie £26882.  If you do that then it works fine.

An easy mistake to make because of a badly designed tool - like most of the ones HMRC produce.

af1963

The calculator he is using is pretty misleading and is probvably the cause of the confusion. Looks like it it this one.  

https://www.tax.service.gov.uk/estimate-paye-take-home-pay

It seems to be designed to work out take home pay, and tax and NI, from one job.  Not the tax due on your total income for the year.  But that's not very clear.

It does say - not very eye-catchingly, but on the intro page  -  "If you have more than one job, use the calculator once for each job.".  So for it to work as intended, you'd need to run it just for the private pension. If you do that, and using the 38L tax code that applies to the private pension, you get this result: note - no 40% tax.  And no NI because of being over state pension age.

(You don't have "a tax code" as such.  You have "a tax code for each separate source of PAYE income". The code only applies to the income from that source. )

How we calculated this

Gross income

£26,882.70

Personal Allowance

£380.00

Taxable Income

£26,502.70

Income Tax at 20%

£5,298.74

National Insurance

£0.00

Take-home pay

£21,583.96

plus untaxed state pension of 12,208.00  = 33791.96

If you say you are pension age, and enter the total income of £39000, but don't enter a tax code, it calculates as if you were earning £39000 from a single job, and had your full tax allowance.  Again, no 40% tax and no NI.

How we calculated this

Gross income

£39,090.70

Personal Allowance

£12,570.00

Taxable Income

£26,520.70

Income Tax at 20%

£5,302.34

National Insurance

£0.00

Take-home pay

£33,788.36

(a couple of pounds different, most likely because of something else contributing to the tax code above. But nothing major and no 40% tax)


Now if you amend this and say you're getting £39000 , but claim you have a tax code of 38L *applied to that job/salary*, it produces the calculation that the OP was seeing.  

But that isn't the situation.  There is no job or pension from which he gets £39k and to which a tax code of 38L has been applied.

Grumpy_chap

Retired2015 said:

I also rang HMRC and they confirmed I am paying 40% tax on earnings of £39000 p.a. (made up of State Pension £12,208.00 and Private pension £26882.70).

I suspect whoever you spoke to at HMRC was just in a call centre and taking the information from whatever you provided them in the call and not looking at your actual tax record.

It seems as though there is clear reason for confusion in what you may have stated to the call-centre personnel.
First, you seem to be using the phrase "earnings" whereas you appear to have no earnings.
Second, if you stated "earnings" of £39k plus that you received SP and tax code 38L, then the call-centre personnel will have considered the £12,190 SP PLUS earnings of £39k.  The calculator then used will output the small proportion of tax going into higher rate band.  

You must put out of your mind that you have "earnings" (unless you do, of course).
What you actually seem to have are SP (£12,190) plus private pension (£26,810) making total income £39k.  Still none of this income is "earnings".

"Earnings" has a very specific meaning in tax terms - it is nothing to do to whether you worked hard to earn the retirement income which you enjoy.  The retirement income is just that - "income" but not "earnings".  In fact, the pension is, in tax terms "unearned income" whereas your "income" is the sum of "unearned income" plus "earnings".  For the sake of pedantry, "earnings" is more correctly phrased "earned income".

Stubod

...surely 6 pages is enough to convince the OP they are not being unfairly taxed???

xylophone

If the OP really wants to make things fare, 

Eat his words?

GunJack

I think the OP should register for government gateway and look at the tax part of that service, should be easy enough to check in there they've paid the correct amount of tax.....