Pension income crept into higher rate tax

Oldmoondog

Dazed_and_C0nfused said:

Oldmoondog said:

Further it my recent thread on higher tax rate, my latest tax code notice states for the first time in 16 years since retiring that I have a sum listed under Adjustment to Rate Bands when nothing has changed on my income.

In your previous thread you referred to military and State Pensions.

Are you saying you have been excluded from the inflation related increases everyone else receiving these pensions is getting from April 2025?

State Pension is going up 4.1% for most people and military could be 1.7%.

With the Personal Allowance and rate bands remaining the same as previous years that could mean you are higher rate overall but not on your main source of income. 

If you have two (or more) pensions paid under PAYE that is where an adjustment to rate band comes into play.  Your second pension stays on BR (basic rate) code and you pay more at your main pension to compensate for this.

I have three pensions, One state, One Military and the other a small private pension, which has been the same amount each year for the past 15 years.  This is the first year that this Adjustment to Rate Bands amount has been included.  It does appear on investigation that my tax had been based on the combined income of all three pensions.  However the small private pension has already been taxed at BR rates before payment.  So why have they included it in the main tax calculation? That seems as though they have taxed me twice?

molerat

Quite simply your total income takes you in to the higher rate but with the way your income is split and codes available none of the streams would pay enough tax to cover that higher rate amount.  They have therefore deducted a rate adjustment to collect that extra bit of tax, it does not tax you twice but takes that little bit the BR code is unable to collect.

SarahB16

bjorn_toby_wilde said:

SarahB16 said:

Oldmoondog said:

Further it my recent thread on higher tax rate, my latest tax code notice states for the first time in 16 years since retiring that I have a sum listed under Adjustment to Rate Bands when nothing has changed on my income.

Could it be due to your savings income exceeding the threshold of £500 (20% tax payer) or £1,000 (40% tax payer). 

I think that’s the wrong way round Sarah. 

Thank you for correcting me and yes, you’re right, £500 for 40% tax payers and £1,000 for 20% tax payers. 

Flugelhorn

badmemory said:

Flugelhorn said:

squirrelpie said:

As @QrizB said, it's probably untaxed interest I've got a K-tax code this year

I always pour another glass of wine when trying to understand the K code - thankfully HMRC gave up sending me wine ... I mean K codes... and stuck to SA 

Sorry but you can no longer just refer to it as SA.  I assume you are referring to self assessment, which I used to do.  Many pensioners now are under SA which is simple assessment along with the K code, in my case anyway.  Calling both SA seems to show a distinct lack of common sense and/or imagination.  I would prefer to file self assessment but they have told me if I do they will just ignore it anyway.  

The one advantage of my SA is that when they are 6 months late notifying me (so Jan 25 instead of July 24) then I still get 3 months to pay so paid mid april instead of Jan.  Almost 3 months extra interest for me.

yes now properly retired it is  self assessment (fill in online and submit by end of Jan) - no more K codes thank goodness- they were eyewatering (pension and 2 jobs) 

jem16

Flugelhorn said:

badmemory said:

Flugelhorn said:

squirrelpie said:

As @QrizB said, it's probably untaxed interest I've got a K-tax code this year

I always pour another glass of wine when trying to understand the K code - thankfully HMRC gave up sending me wine ... I mean K codes... and stuck to SA 

Sorry but you can no longer just refer to it as SA.  I assume you are referring to self assessment, which I used to do.  Many pensioners now are under SA which is simple assessment along with the K code, in my case anyway.  Calling both SA seems to show a distinct lack of common sense and/or imagination.  I would prefer to file self assessment but they have told me if I do they will just ignore it anyway.  

The one advantage of my SA is that when they are 6 months late notifying me (so Jan 25 instead of July 24) then I still get 3 months to pay so paid mid april instead of Jan.  Almost 3 months extra interest for me.

yes now properly retired it is  self assessment (fill in online and submit by end of Jan) - no more K codes thank goodness- they were eyewatering (pension and 2 jobs) 

I complete Self Assessment each tax year and I still have a K code attached to my main tax code. This is because my state pension is above the personal allowance. 

badmemory

I too have a K code & am only allowed simple assessment.  I say simple assessment but that is when it is actually correct so rarely that simple.  So a phone call to correct most years plus simple assessment is also about 20p/40p more expensive too due to the rounding changes.  Yes I do know that that is nitpicking but 20p by a couple of million taxpayers is over £200,000.

Oldmoondog

molerat said:

Quite simply your total income takes you in to the higher rate but with the way your income is split and codes available none of the streams would pay enough tax to cover that higher rate amount.  They have therefore deducted a rate adjustment to collect that extra bit of tax, it does not tax you twice but takes that little bit the BR code is unable to collect.

So why have they not included that in the past when I have clearly been in the 40% bracket?

Dazed_and_C0nfused

Oldmoondog said:

molerat said:

Quite simply your total income takes you in to the higher rate but with the way your income is split and codes available none of the streams would pay enough tax to cover that higher rate amount.  They have therefore deducted a rate adjustment to collect that extra bit of tax, it does not tax you twice but takes that little bit the BR code is unable to collect.

So why have they not included that in the past when I have clearly been in the 40% bracket?

If you are 40% at your main job/pension then there is usually no need for it.

It is when you have some basic rate band left and another source of income it is needed.  The alternative would be to use a D0 code and you would then pay too much.

QrizB

It might be easier to explain if you give specific examples of annual income streams and tax codes? (Or it might not!)

Also note that there's a delay in recovering any underpaid tax, so you might be paying extra in 25/26 to make up for untaxed interest in 23/24? I'm assuming that you don't complete a Self Assessment tax return?