HMRX Tax on Government Pensions for full year when only started receiving pension 4 months ago

Tinkerbellmum

Both my husband and I became 66 about 4 months ago and began to receive our Government pension.  He noticed that HMRC had changed his PAYE code and when he went onto the HMRC website he saw that that HMRC have assumed he will be getting a full year of Government pension for the current tax year and not 4 months worth.  The result is that he has now having to pay 40% tax bill on about £7K which will be collected from his other pension income this month.  He has contacted them, but their predicted response time is 35 days, which will be well after the end of the tax year.  We are now expecting a substantial drop in income for this month just when a big bill is due.  I checked my tax situation online with HMRC and they have done the same to me...they are saying I wiil be paid/receive a full year's government pension for 2024-2025, not the 4 months worth, but as I have other income which results in having to fill in a tax return and paying tax based on this I will not be subject to the same deductions and hope to solve the problem at this point.  THIS MUST be affecting other people with 2nd pensions.

molerat

What exactly have they changed the tax code to - does it have an X suffix ?  That is the usual way and in that case you would be taxed each month on 1/12th of the annual state pension amount.

Dazed_and_C0nfused

Tinkerbellmum said:

Both my husband and I became 66 about 4 months ago and began to receive our Government pension.  He noticed that HMRC had changed his PAYE code and when he went onto the HMRC website he saw that that HMRC have assumed he will be getting a full year of Government pension for the current tax year and not 4 months worth.  The result is that he has now having to pay 40% tax bill on about £7K which will be collected from his other pension income this month.  He has contacted them, but their predicted response time is 35 days, which will be well after the end of the tax year.  We are now expecting a substantial drop in income for this month just when a big bill is due.  I checked my tax situation online with HMRC and they have done the same to me...they are saying I wiil be paid/receive a full year's government pension for 2024-2025, not the 4 months worth, but as I have other income which results in having to fill in a tax return and paying tax based on this I will not be subject to the same deductions and hope to solve the problem at this point.  THIS MUST be affecting other people with 2nd pensions.

Were the new tax codes not operated on a non cumulative basis i.e. each pension pay day from when the new tax codes were issued without factoring in what you had been paid previously in the year?

You might find this worth a read, in particular the example of Wes.

https://www.litrg.org.uk/pensions/state-pension/tax-state-pension/how-tax-collected-state-pension

TheSpectator

A complete waste of time HMRC putting explanatory notes on the coding notices it seems.

Ayr_Rage

As per the link added by @Dazed_and_C0nfused you need to check the payslip/advice from the pension provider.

Once my pension started in Feb 2025 a new code was issued which took into account the full annual state pension, the code remained with an L at the end, but the basis on my pension payslips has changed from 0 to 1.

The monthly tax deduction is correct.

[Deleted User]

Ayr_Rage said:

As per the link added by @Dazed_and_C0nfused you need to check the payslip/advice from the pension provider.

Once my pension started in Feb 2025 a new code was issued which took into account the full annual state pension, the code remained with an L at the end, but the basis on my pension payslips has changed from 0 to 1.

The monthly tax deduction is correct.

Indeed - that is how it works and the deductions for March should be correct. 

However, there could well be an underpayment for 2024/25 if the state pension started four months ago and the tax code is only now being applied as it appears from the op 

‘The result is that he has now having to pay 40% tax bill on about £7K which will be collected from his other pension income this month’

Cheshire_Lion

TheSpectator said:

A complete waste of time HMRC putting explanatory notes on the coding notices it seems.

The problem isn't the explanatory note, or the fact that receipt of state pension can impact tax codes and personal allowances. It's the fact that HMRC doesn't act in accordance with its own explanation.

The explanatory note says "we know you won't receive the full amount (of State Pension) this year". Yet HMRC's estimate of my tax for the current tax year as stated in my personal tax account is based on the assumption that I will receive the full amount this year, even though I haven't. This erroneous assumption not only contradicts HMRC's explanation, but has knock on implications for the next tax year when HMRC will want to claw back tax that simply isn't owed.

I thus have every sympathy with the original poster, and the unnecessary stress caused by HMRC's unacceptably contradictory behaviour.

molerat

If they use an X suffix for the code they are not assuming anything nor deducting the whole annual pension amount but 1/12th of it each month going forward and thus deducting roughly the correct tax. The tax code is not your allowance, it is simply an attempt to deduct the correct amount of tax by year end. The only knock on effect in the next year is usually a small adjustment because it is difficult to get it 100% spot on in the first year. There is no contradictory behaviour but a general lack of understanding of how the PAYE system works from the general public.

[Deleted User]

Cheshire_Lion said:

TheSpectator said:

A complete waste of time HMRC putting explanatory notes on the coding notices it seems.

This erroneous assumption not only contradicts HMRC's explanation, but has knock on implications for the next tax year when HMRC will want to claw back tax that simply isn't owed.

None of that is correct and simply reflects a misunderstanding as to how the system operates. 

TheSpectator

Cheshire_Lion said:

TheSpectator said:

A complete waste of time HMRC putting explanatory notes on the coding notices it seems.

The problem isn't the explanatory note, or the fact that receipt of state pension can impact tax codes and personal allowances. It's the fact that HMRC doesn't act in accordance with its own explanation.

The explanatory note says "we know you won't receive the full amount (of State Pension) this year". Yet HMRC's estimate of my tax for the current tax year as stated in my personal tax account is based on the assumption that I will receive the full amount this year, even though I haven't. This erroneous assumption not only contradicts HMRC's explanation, but has knock on implications for the next tax year when HMRC will want to claw back tax that simply isn't owed.

I thus have every sympathy with the original poster, and the unnecessary stress caused by HMRC's unacceptably contradictory behaviour.

Perhaps read the remainder of the message and not partially quote.

Quite simply, you are wrong.

Cheshire_Lion

TheSpectator said:

Cheshire_Lion said:

TheSpectator said:

A complete waste of time HMRC putting explanatory notes on the coding notices it seems.

The problem isn't the explanatory note, or the fact that receipt of state pension can impact tax codes and personal allowances. It's the fact that HMRC doesn't act in accordance with its own explanation.

The explanatory note says "we know you won't receive the full amount (of State Pension) this year". Yet HMRC's estimate of my tax for the current tax year as stated in my personal tax account is based on the assumption that I will receive the full amount this year, even though I haven't. This erroneous assumption not only contradicts HMRC's explanation, but has knock on implications for the next tax year when HMRC will want to claw back tax that simply isn't owed.

I thus have every sympathy with the original poster, and the unnecessary stress caused by HMRC's unacceptably contradictory behaviour.

Perhaps read the remainder of the message and not partially quote.

Quite simply, you are wrong.

Firstly, I quoted all your message so what’s your problem? Secondly, please explain why I’m wrong. Thirdly, you wouldn’t be making your unsubstantiated “you are wrong” statement if you’d listened in to the several calls I have had with HMRC.