Emergency Tax

Whiterose23

I am 60 and was made redundant in December 2025. I used my redundancy plus I activated two small final salary pensions and took a tax free lump sum plus £10,000 from a third (defined contribution) pension so I could pay off my mortgage with all the tax free lump sums combined. I activated these at the end of April (in new tax year).

So my monthly income since then from the two small final salary pensions is £105 and £348 a month before tax.

When I drew down the £10,000 from the third defined contribution pension, I paid 20% tax on that. The rest I have left alone for when I retire.

I have checked on the HMRC website and my tax code is BR for the small pension payments.

Am I right in thinking I shouldn’t be paying so much tax given that my income so far this year is below £12750?

Luckily I’ve now found a new job which I have just started, but I’m not sure what I should do with regard to the emergency tax I’m currently paying?

Apologies in advance; I find this confusing.

Thanks.

MattMattMattUK

When you make a withdrawal from a pension it is automatically taxed at the starting rate of 20%. Provided that withdrawal was with the pension withdrawal limits it will be tax free, but you get that back either via self assessment at the end of the tax year, or PAYE if you have another income. Do you have a new job yet, are you on a PAYE payroll?

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/6673294/emergency-tax

That isn't emergency tax though. The emergency tax code is 1257L, not BR.

Given you have now got a new job and the pensions are small you are probably best leaving the BR codes alone and having your main code (possibly 1257L) against the job.

eskbanker

Am I right in thinking I shouldn’t be paying so much tax given that my income so far this year is below £12750?

Tax doesn't work on the basis of no deductions until you reach your annual allowance, the default assumption is that you have one-twelfth of your allowance to use each month, but there are a variety of additional factors that apply when starting new income streams and dealing with multiple PAYE income sources.

Whiterose23

https://forums.moneysavingexpert.com/discussion/comment/82041473#Comment_82041473

I’ve just started a new job two weeks ago with the NHS so I’m assuming once I start getting paid it will even things out. Will the BR tax code change on my small pensions to something else?

Whiterose23

The 1275L is the normal tax code isn’t it? So basically because I took £10,000 out of one of my pensions, HMRC are assuming I will be receiving that each month??

molerat

https://forums.moneysavingexpert.com/discussion/comment/82041750#Comment_82041750

That all depends, where has your tax free allowance been allocated ? If against that pension then they are seeing that as the main income source. Unusual if they did deduct 20% tax from a first draw, should be 1257LX unless you completely emptied the pension.

Whiterose23

https://forums.moneysavingexpert.com/discussion/comment/82041754#Comment_82041754

The pension I took the £10,000 from, I also took £13000 tax free cash but I needed extra to clear the mortgage. The rest is left, I guess, in drawdown but I don’t plan to touch it till im retired.