Month 1 pension tax code - good news

Smudgeismydog

Scrapping the emergency tax on month 1 looks like good news

https://www.yourmoney.com/household-bills/scandalous-tax-code-system-for-pensioners-ditched-as-refunds-reach-1-4bn/

Dazed_and_C0nfused

Smudgeismydog said:

Scrapping the emergency tax on month 1 looks like good news

https://www.yourmoney.com/household-bills/scandalous-tax-code-system-for-pensioners-ditched-as-refunds-reach-1-4bn/

I think you have misunderstood what is happening.

Nothing appears to be changing for the first payment.  It is only after that has been reported that things will change, with HMRC seemingly going to be issuing more cumulative tax codes for second pension payments onwards.

Which will help some people, but not those who only take a single payment.

SnowMan

The direct source is here

https://www.gov.uk/government/publications/pensions-schemes-newsletter-166-january-2025/7f957726-0716-4fe8-a13b-1a33a07e70b5

From April 2025 we are improving how tax code information is used for those people who are new to receiving a private pension, so they pay the right amount of tax from the outset. We will automatically update the tax code for customers who are on a temporary tax code and would benefit from being on a cumulative code — this means they’ll avoid an overpayment or underpayment at the end of the year. There is no need to contact HMRC and once a tax code has been changed we’ll inform customers by letter or digitally if they’ve signed up for paperless in the HMRC app or online.

You do not need to make any changes to your tax coding process as we will automatically change these codes. 

However, as we’re systematically changing the tax codes for these customers you will receive notices for tax codes that have been automatically adjusted as they happen. As well as benefiting customers who will receive the right pension pay quicker, you may also see a reduction in queries you receive on tax code errors.

This small change is part of our wider commitment towards improving our customer service experience.

NoMore

Some discussion of it here already https://forums.moneysavingexpert.com/discussion/6579967/avoiding-emergency-tax-when-taking-first-income-from-sipp#latest

tldr. It’s not really going to make too much difference. One off large withdrawals are still going to be over taxed 

dont_use_vistaprint

Dazed_and_C0nfused said:

Smudgeismydog said:

Scrapping the emergency tax on month 1 looks like good news

https://www.yourmoney.com/household-bills/scandalous-tax-code-system-for-pensioners-ditched-as-refunds-reach-1-4bn/

I think you have misunderstood what is happening.

Nothing appears to be changing for the first payment.  It is only after that has been reported that things will change, with HMRC seemingly going to be issuing more cumulative tax codes for second pension payments onwards.

Which will help some people, but not those who only take a single payment.

This sounds like great news and about time, it’s scandalous that they use a tax system designed for regular weekly or monthly wages, on a saving system that’s been reformed so you can access your money however you like.

molerat

dont_use_vistaprint said:

Dazed_and_C0nfused said:

Smudgeismydog said:

Scrapping the emergency tax on month 1 looks like good news

https://www.yourmoney.com/household-bills/scandalous-tax-code-system-for-pensioners-ditched-as-refunds-reach-1-4bn/

I think you have misunderstood what is happening.

Nothing appears to be changing for the first payment.  It is only after that has been reported that things will change, with HMRC seemingly going to be issuing more cumulative tax codes for second pension payments onwards.

Which will help some people, but not those who only take a single payment.

This sounds like great news and about time, it’s scandalous that they use a tax system designed for regular weekly or monthly wages, on a saving system that’s been reformed so you can access your money however you like.

I think you are totally misunderstanding what is going to happen.  All they are doing is making sure an appropriate cumulative code will be issued promptly which already happens in the vast majority of cases.  This will not change excess tax being taken on first withdrawals and mid year large withdrawals.  All it will do is ensure that the tax situation should be correct at the March payment, something that is already happening for the vast majority.  They are not making a major overhaul to the tax system, someone seems to have made a major story out of a minor tweak.

Dazed_and_C0nfused

molerat said:

dont_use_vistaprint said:

Dazed_and_C0nfused said:

Smudgeismydog said:

Scrapping the emergency tax on month 1 looks like good news

https://www.yourmoney.com/household-bills/scandalous-tax-code-system-for-pensioners-ditched-as-refunds-reach-1-4bn/

I think you have misunderstood what is happening.

Nothing appears to be changing for the first payment.  It is only after that has been reported that things will change, with HMRC seemingly going to be issuing more cumulative tax codes for second pension payments onwards.

Which will help some people, but not those who only take a single payment.

This sounds like great news and about time, it’s scandalous that they use a tax system designed for regular weekly or monthly wages, on a saving system that’s been reformed so you can access your money however you like.

I think you are totally misunderstanding what is going to happen.  All they are doing is making sure an appropriate cumulative code will be issued promptly which already happens in the vast majority of cases.  This will not change excess tax being taken on first withdrawals and mid year large withdrawals.  All it will do is ensure that the tax situation should be correct at the March payment, something that is already happening for the vast majority.  They are not making a major overhaul to the tax system, someone seems to have made a major story out of a minor tweak.

This is spot on ⬆️

Dazed_and_C0nfused

molerat said:

So much for their talk about getting things right.  Just checked my tax account and a random X code and reduction has been issued to my main income stream yesterday.  They have decided that my £2800 in £3600, £2700 taxable, out HL SIPP is going to pay out £10859 this year, my £2700 was taken last June. Where do they get that from ? Changed it back to £2700 so will wait and see what happens.  I seem to remember them doing the same in a previous year.

Don't quite get the £59 but if you were paid exactly £2,700 by the end of the first quarter of the tax year then that would an annual rate of £10,800.  

There is an explanation of sorts here but it really needs the information HL submitted to understand which part applies to you.

https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye13090

Qyburn

molerat said:
They have decided that my £2800 in £3600, £2700 taxable, out HL SIPP is going to pay out £10859 this year, my £2700 was taken last June. Where do they get that from ?

2700 in the first three months = 10,800 annual. 

Dazed_and_C0nfused

molerat said:

Qyburn said:

molerat said:
They have decided that my £2800 in £3600, £2700 taxable, out HL SIPP is going to pay out £10859 this year, my £2700 was taken last June. Where do they get that from ?

2700 in the first three months = 10,800 annual. 

It was actually £2714.80 so that make sense.

But that was supposed to be the whole point of this "major change" to prevent people from being over taxed.  If this is what they have implemented then it has achieved the exact opposite.  It just goes to show the importance of being pro active, monitoring your tax account and ensuring all relevant income sources are showing the correct amounts.  Adds more costs to my pension provider as no doubt they will issue me with a new change notice and another putting it back again.  The annual income information HMRC had with reference to my SIPP was provided by me at the start of the tax year so they have made a stab in the dark and ignored customer provided accurate information.  So much for getting it right.

What has been implemented?

I thought the recent announcement was about a forthcoming change, not that something had already changed.

Is this HL pension an ongoing one, albeit you take infrequent payments from it?

NoMore

From April 2025 we are improving how tax code information is used for those people who are new to receiving a private pension, so they pay the right amount of tax faster.

Newsletter 166 — January 2025 - GOV.UK

Whatever happened to molerat is nothing to do with the new way of assigning tax codes for pensions