why has my Wife's tax code dropped?

scoobyjones1

My Wife has recently retired and is living purely from savings and a small, old work pension. That pays her just over 2k a year. Her savings interest is about £1100 ...well within her savings allowance, she is currently a non tax payer.
However, about to go into SIPP drawdown we checked her current taxcode and were shocked to see it has dropped to 1145L.
We will contact HMRC but....why would that be?
Surely it should be 1257L?
Seems they have counted her savings interest as taxable income..?

flaneurs_lobster

Was going to suggest Marriage Allowance having been transferred but the numbers aren't quite right and the code would usually end 'N'.

Isthisforreal99

The correct order of 'set-off' of allowances and tax rates is to cover all income with personal allowances first and as HMRC are only aware of the £2k pension and savings interest then they have correctly reduced the personal allowance as it makes no overall difference to her tax liability. 

It's academic just now anyway as, assuming it's her first drawdown, the SIPP provide will use the emergency code. Her tax code should update after the first withdrawal.

Sea_Shell

Mine's similar.

They reduce the tax code because of interest earned, even if nothing will actually be taxed in the end.

They assume you WILL have taxable income, by year end.

So much of HMRC is retrospective.

scoobyjones1

Isthisforreal99 said:

The correct order of 'set-off' of allowances and tax rates is to cover all income with personal allowances first and as HMRC are only aware of the £2k pension and savings interest then they have correctly reduced the personal allowance as it makes no overall difference to her tax liability. 

It's academic just now anyway as, assuming it's her first drawdown, the SIPP provide will use the emergency code. Her tax code should update after the first withdrawal.

Yes...and she will make a very small withdrawal soon, to get the tax code sorted out...