Private pension as source of main income for HMRC

kushty9

Hi All, a quick question regarding my preserved armed forces pension. I receive around £600 a month but am then taxed at 20% due to my state pension using up my allowance.

My question is, is it possible to get HMRC to class my RAF pension as my main source of income and make it part of the £12,570 allowance? Therefore, leaving my state pension untaxable? Thanks for any help, I don't want to contact HMRC yet if it can't be done.

kassy64

Unfortunately i suspect you will still pay exactly the same amount of tax whichever way you look at it. Total income will remain the same, therefore income tax will remain the same.

Isthisforreal99

It can't be done and what do you mean 'leave the state pension untaxable'? It is taxable but PAYE cannot be operated on it so that ia why it is deducted from your tax free allowance.

QrizB

My question is, is it possible to get HMRC to class my RAF pension as my main source of income and make it part of the £12,570 allowance? Therefore, leaving my state pension untaxable?

The short answer is no. The state pension is paid gross and any tax is taken from other income.

NoMore

The State pension is always paid gross and never has tax deducted directly from it, if tax is due to your overall income (including the SP) that is taken from other sources, in your case your Armed Forces pension.

The State Pension is taxable income and it just doesn't have deductions under PAYE. You seem to think you can get your Personal allowance applied to your Armed Forces pension and still get the State pension tax free, unfortunately that's not how it works. The State pension will use up your allowance first, if any left over that can be applied to other sources.

kushty9

Thank you all for your replies. I did suspect as much.

mrklaw

https://forums.moneysavingexpert.com/discussion/comment/82021871#Comment_82021871

so in the next couple of years while the personal allowance is frozen but the state pension will rise increasingly above it - if you’re state pension only you’ll pay no tax? But if you have other income, they’ll do something to your tax code to pay more tax on the private income to try and claw back unpaid tax on the state pension?

QrizB

if you’re state pension only you’ll pay no tax?

As things currently stand, the thousands of people who already have SP in excess of the personal allowance and no other taxable income are sent tax demands by HMRC in arrears.

The Chancellor announced at the last budget that they were going to do something about this, but they've so far been extremely light on detail as to exactly what.

NoMore

https://forums.moneysavingexpert.com/discussion/comment/82021940#Comment_82021940

Not more tax, the correct amount of income tax. It may be more tax drawn from one particular source but the overall tax you pay should be the amount which is due.

Ignore the State Pension and instead let's say you have two jobs, one pays £12570 a year and the other pays £10000 per year. Your overall income tax liability would be £2000 on the total of £22570 income. Now with two jobs that £2000 could be deducted from both sources of income (perhaps £1000 from each) this would be done by splitting the tax code across both incomes. However it could also be done by assigning the tax free allowance to the £12570 income and taking all the £2000 from the other income. It's still the correct amount of tax just it's drawn from one income instead of multiple. This is how it works with the SP, except the SP never has tax deducted so the tax is always taken from elsewhere.

horsewithnoname

https://forums.moneysavingexpert.com/discussion/6670983/private-pension-as-source-of-main-income-for-hmrc

you cannot “make your state pension untaxable”. It is taxable and that’s that. If the amount goes above the personal allowance the tax is going to remain uncollected if that is your only income, but you cannot make it “untaxable”

Albermarle

https://forums.moneysavingexpert.com/discussion/6670983/private-pension-as-source-of-main-income-for-hmrc

I don’t think HMRC are quite that easy to get around !