How is tax paid when retired?

growstuff

Callistemon21

But that's not how they work it out.

They don't total it then work it out that way; the State Pension is always taken off the Personal Allowance and then the amount of Income Tax payable is worked out.

That's not how the calculation was presented to me.

I copied that from the letter I got last year, so that's how mine was presented.

I have four separate tax codes, as I assume everybody with more than one pension has. This allows the pension providers deduct tax at source, but it's only an estimate.

When the increase in state pension was announced, I did point out that people with another source of income could effectively lose 20% of the state pension increase - even if it's not taken directly from the SP. It all ends up the same in the end.

HMRC totals the whole amount and taxes anything in excess of the personal allowance.

Sorry, that's misleading. The state pension doesn't reduce your taxation. Yes, the state pension is deducted from the personal allowance, so if you have a personal pension and/or any other source of income, you could end up paying 20% tax on almost the whole amount.

Dickens

Callistemon21

The letter which informs you of your tax code is set out thus:

Personal Allowance: £....
Less State Pension: £....
Total Tax-free Amount = £....

Your total tax-free amount is used as follows:
Other Pensions: £....
Other Income: £....

I'm confused (feel pity not scorn, I'm a complete dunce in some areas).

Doesn't everyone have the same standard Personal Allowance of £12,570 income on which you do not have to pay tax?

Is the State Pension then deducted from that amount?

Yes, everybody has the same personal allowance and no, the state pension is not deducted.

I don’t use all my tax free allowance so the unused part (or a proportion) is transferred to Dh tax allowance.

All banks state that interest is paid gross. They do report it to HMRC, so if you do self-assessment that is the way to declare it, but if not, HRMC will include any tax due in your Tax Code.

Dickens, everyone has the personal allowance but then other things are taken into consideration when calculating the tax code. For instance DH has some of my allowance as part of the married tax allowance. You might owe tax from previous years which is reflected in the code etc.

Any tax owed will be taken at source from the private pension.

As for savings, any tax liable on over £1000 interest will be paid by the bank.

I have four pensions.
My state pension is paid (weekly )with no tax deducted.
My small annuity is taxed before I get it, at Basic Rate.
My teacher's pension is taxed at source according to my Tax Code, so that includes the tax due on my state pension, as tax is never taken from SRP.

My tiny French pension - I have to do self assessment on this.

Re my post, my private pensions are all paid nett and I do submit a tax return as I have interest from savings accounts.

Georgesgran

The first £1K interest on savings is tax free too.

That's useful to know. In that case, I am fairly sure that this person's savings won't be taxed.

Taxation of pensions varies - I have one private pension from which tax is deducted at source and an old occupational one which is paid gross.

Mine is worked out as Callistemon states in her post. At the moment I pay no tax on my state and largest private pensions and there is still a little bit of Personal Allowance left which is credited to my next private pension and I pay tax on the balance, and I pay basic rate tax on my two smallest pensions. However, I think this will change when the state pensions increases in April as I think I will pay some tax on my private pensions.

Dickens I was not clear. I meant, no tax is ever deducted directly from your state pension, not that the pension is not taxed. If tax is due on your total income from all sources, under PAYE, the tax due is all taken from your other sources of income, not apportioned across all sources.

DH, as well as the state pension, has several occupational pensions. All tax due is taken from the largest one of these, not spread across them.

Callistemon21

The letter which informs you of your tax code is set out thus:

Personal Allowance: £....
Less State Pension: £....
Total Tax-free Amount = £....

Your total tax-free amount is used as follows:
Other Pensions: £....
Other Income: £....

I'm confused (feel pity not scorn, I'm a complete dunce in some areas).

Doesn't everyone have the same standard Personal Allowance of £12,570 income on which you do not have to pay tax?

Is the State Pension then deducted from that amount?

Callistemon21

But that's not how they work it out.

They don't total it then work it out that way; the State Pension is always taken off the Personal Allowance and then the amount of Income Tax payable is worked out.

That's not how the calculation was presented to me.

I pay self-employed tax, so have to send a tax return.

Dickens is correct. The amount from state pensions, other pensions and self-employed income was totalled. I also had some income from Universal Credit in the 2021/22 tax year. My tax free allowance was deducted and then the rest was taxed.

My tax code had already been adjusted to deduct tax from my personal pensions, but this hadn't taken into account the self-employed income or the Universal Credit and hadn't taken into account the increase in state or personal pensions. My tax bill at the end of January was quite a bit higher than I'd anticipated.

But that's not how they work it out.

They don't total it then work it out that way; the State Pension is always taken off the Personal Allowance and then the amount of Income Tax payable is worked out.

The letter which informs you of your tax code is set out thus:

Personal Allowance: £....
Less State Pension: £....
Total Tax-free Amount = £....

Your total tax-free amount is used as follows:
Other Pensions: £....
Other Income: £....

Yes, the state pension is part of total income for tax purposes.

not alone, no.
but if it is added to an occupational pension and or investment income ?

No, the state pension is not taxed but then, it wouldn't exceed the personal allowance, would it?

M0nica

Yes, deducted from any other source of income they have. The state pension is never taxed.

I thought that your total income - state pension included - was totalled and taxed accordingly?

Best to move any savings into an ISA as no tax will be payable.
Or Premium Bonds (I hardly dare mention them now 😁)

www.which.co.uk/money/tax/income-tax/tax-codes-paye/understand-your-tax-code-awW626N89RH9

The first £1K interest on savings is tax free too.