State Pension and Income Tax

hansi

My wife is due to receive her state pension in January. This will now take her into the income tax breacket as her income will be above the threshold having previously been a non-taxpayer. Approximately, how much tax will be deducted from her pension?

Milarky

This is a 'trick' question, yes?

No tax is ever taken directly from the basic state pension - it is 'taxable income' just like the interest from National Savings accounts but is paid 'gross'.

If your wife has a P/T job then her tax code will be reduced automatically by the eqiuvalent of the amount of her state pension. She will therefore have the tax deducted by her employer for the first time.

hansi

No, this is not a "trick" question. My wife has not worked in the last few years but while she was working she paid full stamp and is therefore entitled to a full pension at 60. After April 05 her investments and pension payments will take her over the tax threshold, and I just asked if tax would be payable on her pension, and how they would work it out after April.

Debt_Free_Chick

Hansi

Suggest your wife speaks to her local tax office ASAP - they will be helpful.

Normally, all her taxable income will be added together, her personal allowances deducted and the tax calculated on the balance. This translates into a tax code, which is applied to her PAYE earnings to collect the tax due.

However, if she does not work, then she has no PAYE earnings and the Inland Revenue have no "vehicle" to collect the income tax. In this case, I believe she would need to complete a self assessment tax return in April 2005 and she would receive a tax bill for payment.

So best to talk to the local tax office to confirm my thoughts and see what they suggest. I can't think of an alternative to the tax bill solution, but the local office will advise.

HTH

hansi

Thank you for that sensible answer. However, you mention completin a self assessment form to be completed in April 2005. She will not become a taxpayer until 6 April 2005 so would she not complete this form at the end of that tax year (2005/2006)?

dunstonh

There is a tax form available from the tax office which asks you to list your retirement income and sources and dates that they apply. Sometimes it is sent out automatically, sometimes you have to ask for it.

If you ring the tax office and let them know your wife is going to be in receipt of pension income, they will send that form out. Then they can alter the tax codes as and when it is needed.

That saves mucking around after the event.

hansi

Thank you. Would you happen to know what that form number is, and can I get it online?

margaretclare

Hi Hansi

Do you qualify for married people's tax allowance (if you were born before April 1935?) Just a thought.

In any case, your wife is entitled to a Personal Allowance, at present it's £4745. As she'll be getting full SRP of £5368, £623 of it will be taxable. But there's a 10% band - the first £1960 of income. So she ain't gonna be paying an awful lot of tax, is she? £623 taxed at 10%.

Margaret

hansi

Thanks Margaret, that's my wife's name too she will be getting more than the SRP and another previous company pension of about £800 pa, but she still won't be paying much tax, also she has BS accounts which I will have to advise that she will be a taxpayer but I guess they will deduct the tax when paying future interest?

dunstonh

I went looking for one a few weeks back and couldnt find one on the internet.

From memory i think it was an R86 or R89. In the end Norwich Union sent one out with the annuity application.

margaretclare

Hi Hansi

As your wife has an extra pension form previous work, the Inland Revenue will apply her tax code to that. But she'll still only pay a tidgy amount AFAIK.

I get full SRP plus SERPS, I also get 3 different annuities from previous employments. Because B and I just sneaked into the married people's tax allowance age-group when we got married in January 2002 (he was born before April 1935) we got that, and we split the allowance between us.

Married women's independent taxation was one of those things I very much wanted to see, I lobbied for it for years. It's humiliating to have a husband deal with one's tax affairs!

Margaret