Tax and Personal Savings Allowance

CatAndKittens

I currently have a private pension of approx £12000 per year, plus savings in normal instant access accounts earning interest of approx £575 per year.

My personal tax allowance has been reduced to £11880 from £12570 due to this untaxed interest.

However I thought you could earn £1000 in savings interest on top of the Personal Allowance without it being taxed. Surely as they have reduced my personal allowance this will result in me having to pay tax via my pension?

I hope this makes sense and sorry if I'm being thick!

DRS1

Are you sure your pension isn't 11880 pa? That is approx £12k.

CatAndKittens

No, the pension is just over £12000 (by a couple of pounds). The calculation of the tax code on the HMRC website shows the reason for the reduction is the untaxed interest.

Isthisforreal99

https://forums.moneysavingexpert.com/discussion/comment/81920461#Comment_81920461

Update your income on the HMRC website to what you think the actual will be. That will trigger a new code.

bioboybill

If your figures are correct then you shouldn't be paying any extra tax unless you got a lot more interest in the previous tax year or didn't pay enough tax on a pension lump sum the previous tax year. Not only do you get a £1000 PSA, there is a £5K nil rate band too.

Albermarle

https://forums.moneysavingexpert.com/discussion/6659353/tax-and-personal-savings-allowance

The HMRC system causes this - there quite a few threads that mention it and it is a pretty confusing way of going about things.

The good news is that it does not mean you will pay any more tax than you should, it is just a quirk with how they calculate your tax code.

Yorkie1

Just to check - is this pension the only income you have?

CatAndKittens

Thank you for all your advice, hopefully it will all sort itself out at the end of the tax year and I’ll get back the tax they stopped from my pension.
Just to clarify no I don’t have any other income except the pension and interest. I do have cash in ISAs but obviously that doesn’t count towards tax. And no I didn’t have any lump sums or larger interest payments in previous years.
Thanks again for your help and advice.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81920585#Comment_81920585

There is no need for you to wait for anything.

If you provide HMRC with an updated figure for your pension that will automatically prompt the calculation of a new tax code and the deduction for untaxed interest will be reduced so your tax code has sufficient allowances to cover your pension income.

For example if your estimated pension is going to be £12,200 then your new code will be 1220L and you won't pay tax on the £12,200 pension income.

molerat

As above. If you update the estimated income in your tax account the code will be changed to accommodate it, the change will be almost instant - within a day or so - and the code will be pushed through to your pension provider hopefully before the final pay run of the year. What does your tax account show as the estimated income from that source ? Checking and correcting your estimated income is something you need to do at the start of every year.

DRS1

Of course pensions can increase part way through a tax year so you may need to tweak the figures a little later.