tax and multiple private pensions

cornishcrone

a friend has 3 small private pensions and the state pension and she is currently paying tax on two of the private pensions, just checking if that is correct as I thought they aggregated the amount of tax due across the board and just took it off one pension.

jem16

Normally the highest pension would receive the main tax code which will be adjusted for the state pension as it’s always paid gross but is taxable income. This will use up most of the tax-free allowance. The other 2 pensions will usually have a BR(Basic Rate)or D0(40%)tax code depending on overall income.

So yes this is the normal way to do it. Occasionally the tax code can be split over multiple incomes but with the state pension involved that’s not likely to happen.

flaneurs_lobster

Quite usual, your friend can check the tax codes being applied and the amount of tax that is being sought in their online Personal Tax Account.

Marcon

You might also reassure her that the amount of tax she'll pay in a year will be the same whichever pensions it's taken from.

molerat

With multiple (pension) income streams it can be important that the correct estimated income is shown for each in your tax account to ensure the correct tax is deducted. In my case, with 3 pensions and SP, the estimated tax deduction shown is within £1 of my calculation.

Silvertabby

HMRC can't take more than 50% from one (in this case) pension. If the private pensions really are that small, then they will have split the tax code between two of them to avoid breaching the 50% limit on the main pension.

LITRG

Hello cornishcrone, we have guidance about how tax is collected on state and private pensions on our website - please follow this link:

https://www.litrg.org.uk/pensions/pension-withdrawals/tax-pension-income

This page addresses issues in relation to PAYE on pensions, including some specific information on the position for someone with multiple pensions:

https://www.litrg.org.uk/tax-nic/how-tax-collected/pay-you-earn-paye/paye-pensions

I hope this information is helpful.

GunJack

https://forums.moneysavingexpert.com/discussion/comment/81998034#Comment_81998034

Why is the rule no more than 50pct from any one pension? Seems a bit odd...

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/81998795#Comment_81998795

It's not just pensions, it's the rule for any PAYE income streams, to avoid hardship, etc.

flaneurs_lobster

https://forums.moneysavingexpert.com/discussion/comment/81998795#Comment_81998795

In the 2105/16 tax year HMRC changed the legislation on all tax codes so the maximum amount of tax is limited to 50% of all taxable earnings.

This is to prevent situations where a change in tax code during the tax year pushes an employee into negative net pay, which is a difficult situation to deal with in payroll.

If an employee changes tax code during the year it is likely they will need to have extra tax deductions to “catch up” to the YTD tax due the new tax code dictates. Now, rather than trying to take all of this tax in one go, HMRC have stipulated that the maximum tax deduction will be 50% of their taxable earnings. With this in place when an employees tax code changes, the extra tax due can be spread out over several pay periods.

https://www.iris.co.uk/support/knowledgebase/kb/11938/

NoMore

https://forums.moneysavingexpert.com/discussion/comment/81998795#Comment_81998795

It's not particularly pensions but any income under PAYE. I believe it's there as a safety net so for example, if you have income from multiple sources but one month only one pays out, you don't end up with no money at all that month because of this.