Trying to understand tax allowance

Maria61

We are both retired and for tax year 24/25 my husband was paying the basic rate of 20% on his private pension - he also took 25k out of his pension around may 2024 and paid 20% tax - we have a financial advisor who inadvertently forgot to advise us that we would trigger 40% tax when we passed the threshold & we found out too late when hmrc notification together with a tax bill of 2600 - we have had to reduce the private pension to bare minimum as 40% tax still applies - I just want to know come the new tax year will the 20% rate be reset or is it more complicated than that?

eskbanker

Taxation is determined according to income received in any tax year, so income in 2024/25 has no bearing on tax liabilities arising from income in 2025/26, so if the latter all fits within the basic rate threshold then there won't be any 40% tax.

molerat

You need to check what is showing against estimated income for each source and adjust as necessary as a higher estimated income than actual could mean a rate band adjustment reducing the code set against the main income stream.