Pension Tax Codes

Moonwolf

I thought I was reasonably switched on with this stuff but my tax codes and predicted income on the HMRC site are a bit all over the place.

Do I just keep an eye and hope it will sort itself out or should I be more proactive?

Pension 1: Tax code 578T - my NHS pension made up of two elements, a smaller 1995 pension which started last December and a 2015 element which didn’t start until April this financial year and had three and a bit months backdated income from last year. Expected income is £24k which is too high but is that due to the month 1 backdated pension.

Pension 2: Tax code 225LX - my Standard Life DC pot that I am drawing down monthly and changed the amount in May once my NHS pension was confirmed and again this month now my annuity is here. Taxable income is £6k which is what I have received to date, I thought that as it is X it is not cumulatively calculated, is that right, but see below.

Pension 3: Tax Code 409TX - this is a DB scheme paid by Aviva. Estimated income is £5k which will be about right for the year’ despite an X code. As this has been regular since December with a cost of living rise this year why is this X?

Pension 4: Tax code BRX - this is a recently set up annuity. Estimated income this year is £5,300 which is about right.

My total tax free amount is £12,132 due to underpaid tax last year.

molerat

Your codes add up to 1212, 1 point short of the full 1213, which is normal with multiple income streams due to the way PAYE adds around £9 to the tax free amount of each code. The X suffixes mean the tax is calculated non cumulatively but makes little difference with a fairly regular income, it would only be of concern if you had a large one off payment mid year - if you really want them to change it just contact them. Why have they used the X suffix ? - because they do !, often no logical reason. Just make sure the expected incomes from each stream are showing correctly in your tax account.

UKTaxHelper

On the £24k, that's the backdated bit doing it. A payment with last year's arrears sitting inside it gets annualised, so the estimate for that pension comes out too high.

It isn't only a coding quirk though. Pension is taxed by the year it builds up in, not the year it lands, so the months that belong to last year can be related back to last year. That's a job for after 5 April, with a note of which months fall where. Only worth doing if it actually changes the tax.

Moonwolf

https://forums.moneysavingexpert.com/discussion/comment/82119019#Comment_82119019

Essentially it is up to me if it has an impact, currently it is 20% either way.

If I do the faff and recognise that cash last year, I could increase my drawdown a bit this year without hitting 40%. Arguably that is a strategy I want as my state pension kicks in in 2032 by which time fiscal drag could put me in the 40% bracket, although I’ll probably be £3-4k under (obviously depends on inflation and personal allowances being unfrozen when promised), so moving money beyond my immediate needs from my DC pension to ISAs while I have the headroom would make sense.

UKTaxHelper

If you do go for it, get the relate back agreed before you decide the drawdown rather than after. The arrears already belong to last year in law, HMRC just won't move them unless someone asks. And once money's out of the pot it can't go back, so you don't want to size this year's withdrawal off a figure that's still sitting in the wrong year.