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Tax on pension...?

Discussion in 'Retirement' started by porcgi, Sep 25, 2019.

  1. porcgi

    porcgi New commenter

    i retired on 31.09.19 and I’m about to received my first pension payment. I’ve been sent a new lower tax code, which means I will be paying tax... a bit of mystery? Any ideas anyone?
  2. Prim

    Prim Occasional commenter

    Anything to do with the current financial year? Perhaps it will go to zero after APril if you are below the threshold for paying tax?
    border_walker likes this.
  3. PeterQuint

    PeterQuint Lead commenter

    The income tax allowance threshold is £12,500 a year. Anything more than that, and you pay 20% income tax on it.

    Let’s say you were on £40,000. April to September you earned £20,000, but you paid tax as if you were earning £40,000.

    They need to work it all out, see how much you’ve paid, and work out how much you should pay over the year with 6 months’ pay and 6 months’ pension.
    border_walker likes this.
  4. lindenlea

    lindenlea Star commenter

    You will pay income tax on your pension at the appropriate rate for you. The lump sum is tax free. The state pension is not directly taxed but the tax code is adjusted so the effect is the same.
    border_walker and FrankWolley like this.
  5. FrankWolley

    FrankWolley Star commenter

    One reason why taking the largest lump sum possible can be a good idea...
  6. Sundaytrekker

    Sundaytrekker Star commenter

    The first month will likely be on a standard tax code then they will adjust once your end of employment information reachers them. I got a nice refund in the second month for the very reason Peter said. It will then be a standard amount till next April. After that you’ll reach your correct new amount going forward so it depends whether that is over £12500. If you earn any new part time earnings that will be taxed going forward if the total income is above £12500.
  7. porcgi

    porcgi New commenter

    I’ve been on the government gateway site which I think has helped me figure this out. I have two pensions from different providers...one I pay no tax on and on the teaching pension I’ve been given a tax code of 970....? They’ve taken my teaching salary from April to August, added the amounts I’ll get from the two pensions until March 2020...estimated a total salary I’ll get for the year 2019-2020 and calculated the tax I owe. Looking at the figures it seems about right...
  8. Treacle3

    Treacle3 New commenter

    Strangely, I've been thinking of joining this site for a while and whilst out on a bike ride this morning, I decided to - to ask about this very topic. I also took early retirement on 31st August and will shortly receive my first "full month's pension". This tax year, I have already earnt more than the £12,500 but am enjoying retirement without any additional taxable employment atm...
    I was assuming my pension amount would initially be taxed at my existing "teacher tax code" rate and that at some point it would be adjusted. My question is...Do I have to do anything to make that tax code adjustment - or will HMRC automatically do it? Basically, is Sundaytrekker's experience the norm. Ideally, I don't want to wait until the end of the tax year to receive a refund - as could do with the money now. Thanks.
  9. porcgi

    porcgi New commenter

    Basically, I received a message from the Teacher Pension site informing me that HMRC had notified them of my new tax code, which applied to my teaching pension and they adjusted my take home amount. So, I assume if it applies to you they will notify you and take the tax automatically....
  10. Rott Weiler

    Rott Weiler Star commenter Forum guide

    @Treacle3 is your annual pension more than £12,500? If so I can't think why your tax code would change.
  11. porcgi

    porcgi New commenter

    Yes....but I’ve only just started to receive it....They’ve taken what I’ve earned between April and August ...added my pensions to that figure, which gives me a total income for the tax year...then they’ve deducted that tax I’ve already paid on my earnings....then adjusted the tax code to ensure the rest of the tax I owe is paid via my teaching pension...
  12. Sundaytrekker

    Sundaytrekker Star commenter

    That sounds about right, porgies. It sounds as though they’ve already had the information they needed from your employer to allow HZmRC to calculate this correctly. I think I remember sending my P45 on to the HMRC address after retirement.
  13. Treacle3

    Treacle3 New commenter

    Thanks for your help everyone. I have received a P45 but in the notes it says to give it "to a new employer"...As I am hoping to get a part time job soon I've just kept it.
    @Rott Weiler... No, not more than £12,500 (I wish:D)

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