Tax on Pension Income

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Fabfranky
Fabfranky Posts: 2 Newbie
in Pensions, annuities & retirement planning
My wife works part time and has just started receiving a small income from one of her pensions, less than £400 a month. This pension has 20% tax deducted prior to payment and with this and her employment income is well within the 20% tax earnings bracket. She has just been informed by the Tax office that her personal tax allowance is also being reduced to reflect this pension income to ensure that she is paying the correct amount of tax. Is this correct as it seems to me that she is paying tax twice on this pension income.

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  • Albermarle
    Albermarle Posts: 22,143 Forumite
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    Yes it sounds like she is paying twice .
    Probably a mistake in the tax office . Perhaps they are getting mixed up with the State Pension as this is paid without tax deducted and then a decrease to your personal allowance is used to account for this
  • Fabfranky
    Fabfranky Posts: 2 Newbie
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    Thankyou for your reply. They possibly have made a mistake. I did speak to them and the young man on the phone agreed with me that my wife was effectively paying tax twice on her pension income and then informed me that 'Them's the rules' and I should look them up on the Gov.co website for clarification. Tried that and still no clearer.
  • Sun-Is-Fun
    Sun-Is-Fun Posts: 243 Forumite
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    If she earns less than £12,500 in total per year in pensions and part time work, she should be getting no tax taken away at all. Anything over that, will be taxed at 20%.
  • squirrelpie
    squirrelpie Posts: 961 Forumite
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    The first payment she gets from a new provider will be taxed under the 'emergency' rules, which may well result in a straight 20% deduction for small amounts. After the payment is made, the provider will report it and be issued an appropriate tax code to use which will automatically correct the initial overpayment, if any, and take the correct amount going forward. She should get copies of any tax code issued to the provider and any adjustments to any other tax codes she may have with employers or other providers. You can phone them if you want to adjust where the tax is paid for any reason.


    If she gets more than the first payment without receiving a tax coding and still with excessive tax being deducted then she needs to ask the provider and the tax office what is going on.
  • frugalmacdugal
    frugalmacdugal Posts: 10,077 Forumite
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    Hi,


    if she is already paying tax on her employment income, then she must be over her tax free allowance, so will then need to pay on pension, just like having a second job.
  • xylophone
    xylophone Posts: 44,413 Forumite
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    Does she earn more than her personal allowance in her job?
  • Albermarle
    Albermarle Posts: 22,143 Forumite
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    if she is already paying tax on her employment income, then she must be over her tax free allowance, so will then need to pay on pension, just like having a second job. [/QUOTE

    Yes that is normal , but then why is the tax office then saying they need to reduce her personal allowance to account for the pension ?
  • frugalmacdugal
    frugalmacdugal Posts: 10,077 Forumite
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    Hi,


    Albermarle wrote: »
    if she is already paying tax on her employment income, then she must be over her tax free allowance, so will then need to pay on pension, just like having a second job. [/QUOTE

    Yes that is normal , but then why is the tax office then saying they need to reduce her personal allowance to account for the pension ?


    As already said by 'squirrelpie' her first payment may have been under 'emergency', so will now have to adjust tax code.
  • eandjsmum
    eandjsmum Posts: 465 Forumite
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    I am also working part ti e and receive a pension. My tax on the pension is deducted at source. When I first received the pension no tax was deducted, as a consequence of that HMRC wrote to tell me that my personal allowance would be reduced to take into account of the unpaid tax on the first installment of my pension. As I earn over the personal allowance on my employment I pay tax at 20% on this and then when I get my pension the 20% tax is deducted at source. Maybe this is what is happening with your wife.
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