How do pension providers no how much tax to charge

UKSBD

My mother receives about £350 a week in state pension and about £50 a week from a private pension

She has a K tax code from the private pension and is taxed at about 50%

How do the personal pension providers know how much tax to charge?

Do the DWP provide information to the private pension providers on what other income my mother receives and they then calculate the tax based on this?

El_Torro

The pension provider gets a tax code from HMRC which is calculated based on what they think your mother's taxable income will be this year. Your mother is then taxed based on that tax code. Yes, HMRC should know how much state pension she is getting, as well as what she is getting from the private pension. 

Since your mother is getting about £21k a year she should be paying about £1,600 a year in income tax. So a 50% rate on the private pension sounds about right, or even a bit low. If she gets money from interest or other taxable income from elsewhere the income tax owed would be higher. 

sheramber

DWP advise HMRC of the state pension.
 

The private pension company advise HMRC   that the person is in receipt of a pension and HMRC issue a code number to collect the tax due  on the income.

State pension is taxable income but is not taxed at source so the personal tax allowance of £12570  is restricted to cover it.
When the state pension is higher than the personal allowance  minus number arises and a K code is issued. 

At the end of the tax year HMRC will check that the correct amount of tax has been deducted. 

It is exactly the same as happens with employment income. 

mebu60

DWP and the private provider will advise HMRC of the amounts paid. HMRC will send your mother a notice of coding and also advise the private pension provider of the tax code to use.

'About 50%' is about right on the private pension as no tax is deducted from the state pension.

Using your 'about' figures, assuming no other income / interest / etc and assuming the standard personal allowance applies:
£350 x 52 = £18200
£50 x 52 = £2600
Total pension income = £20800
Less personal allowance £12570 = £8230 taxable
£8230 x 20% = £1646
£1646 / 52 = £31.65 pw tax, 'about 60%' of the private pension. 

Edited 19:05 - see comments below about 50% restriction so there may be additional tax to pay in due course. 

Sarahspangles

UKSBD said:

My mother receives about £350 a week in state pension and about £50 a week from a private pension

She has a K tax code from the private pension and is taxed at about 50%

How do the personal pension providers know how much tax to charge?

Do the DWP provide information to the private pension providers on what other income my mother receives and they then calculate the tax based on this?

I think it’s worth mentioning that HMRC don’t take more than 50% from a PAYE payment (whether salary or pension). So if she still owes a little tax she’ll get either a Simple Assessment PA302 or a PAYE P800 in the late summer or autumn after the end of the tax year, asking her to arrange to pay the outstanding tax.

p00hsticks

El_Torro said:

Since your mother is getting about £21k a year she should be paying about £1,600 a year in income tax. So a 50% rate on the private pension sounds about right, or even a bit low. If she gets money from interest or other taxable income from elsewhere the income tax owed would be higher. 

My understanding is that the pension provider / employer is not allowed to deduct more that 50% of the gross amount in tax, and so it's possible that there may also be a further amount to pay at the end of the tax year - in which case HMRC would write asking for payment. 

Dazed_and_C0nfused

Sarahspangles said:

UKSBD said:

My mother receives about £350 a week in state pension and about £50 a week from a private pension

She has a K tax code from the private pension and is taxed at about 50%

How do the personal pension providers know how much tax to charge?

Do the DWP provide information to the private pension providers on what other income my mother receives and they then calculate the tax based on this?

I think it’s worth mentioning that HMRC don’t take more than 50% from a PAYE payment (whether salary or pension). So if she still owes a little tax she’ll get either a Simple Assessment PA302 or a PAYE P800 in the late summer or autumn after the end of the tax year, asking her to arrange to pay the outstanding tax.

It should be a Simple Assessment (PA302) as the P800 is only meant to be relevant when the tax owed will be collected via the tax code.  Which clearly cannot happen here as the 50% limit has already been breached.

UKSBD

Thanks all

That all makes sense
The 50% of her private pension probably won't be enough and she will probably be about £500 short.

Will she be expected to pay that in one go when she gets the final calculation or can they adjust the following years tax code?

Dazed_and_C0nfused

UKSBD said:

Thanks all

That all makes sense
The 50% of her private pension probably won't be enough and she will probably be about £500 short.

Will she be expected to pay that in one go when she gets the final calculation or can they adjust the following years tax code?

No, as the Personal Allowance is being frozen for the foreseeable future but the pension income, State Pension at least, will continue to increase the tax code cannot be used to collect any additional tax.

It can no longer correct enough tax because of the 50% limit so she will have to pay the extra direct to HMRC.

UKSBD

Dazed_and_C0nfused said:

UKSBD said:

Thanks all

That all makes sense
The 50% of her private pension probably won't be enough and she will probably be about £500 short.

Will she be expected to pay that in one go when she gets the final calculation or can they adjust the following years tax code?

No, as the Personal Allowance is being frozen for the foreseeable future but the pension income, State Pension at least, will continue to increase the tax code cannot be used to collect any additional tax.

It can no longer correct enough tax because of the 50% limit so she will have to pay the extra direct to HMRC.

Yeah I just re-read your previous message and saw that.
I've just told her to expect about a £500 tax bill in a few months time, and probably about the same, or a bit more every year at about the same time.