How do I work my tax out?

[BarryH]

Hello All,

Please excuse the ignorance but I'm extremely confused over the tax on my new state pension.

I reached my 65th birthday at the end of last month and started receiving my state pension but for the 2010/11 tax year my code has dropped to 389P. I was expecting it to be 949P. I thought this meant I would pay tax on everything over £9490.

As I have a small company pension, the tax office tell me my code has dropped by the amount of state pension I will receive to allow them to collect tax on it. As the new code is far lower, to me it means I will have to pay tax on everything over £3890 which more than doubles the am mount of tax I will be paying.

I spoke to the tax office but there were less than helpful, they did not explain why they take the tax this way. I guess it was Friday and they wanted to get home.

Any help or advice would be most welcomed.

Regards
Barry

[avalonmpk]

To BarryH from the information you supplied I calculate that your state pension is £119.40 per week .
If this is the case then the tax code you were given is the higher figure less the years total of you state pension ie all the state pension in your case is in fact tax free.
 CODE 949 equals £9490
 Less 119*40=      £6210 rounded off
                             £3280 + an adjustment figure for you private pension
Don't contact the tax office in the first week of the month or on Mondays or Fridays

[BarryH]

Thanks for the help.

Can I try and put it another way to clear some of my confusion. If, being 65 I now have a tax code of 949 (£9490) and had total income of £13000 a year (state and company pensions), I think I should be paying tax on the difference which is £3510. A tax bill of roughly £700?

If the tax office drop my code by the amount of the state pension, £9490 minus £6210 leaving me with an adjusted code of 389, this means I have to pay tax on the difference between £3890 and £13000. Meaning I have to pay tax on £9110. A tax bill bill of £1822?

This is what I'm finding it hard to understand.

Regards
Barry

[avalonmpk]

Barry H
No. You take the residual after state pension and apply a tax relief of  the amount allocated  on the outstanding balance.
13,000 minus (taxcode allowance+state pension) at 20%
Your first paragraph is correct (almost)
Put another way:13000 minus pensioners allowance 9490= 3150 t @ 20% tax= 702

[BarryH]

Barry H
No. You take the residual after state pension and apply a tax relief of  the amount allocated  on the outstanding balance.
13,000 minus (taxcode allowance+state pension) at 20%

Thanks for the help but I still can't understand what you mean in your first line:

13,000 minus (taxcode allowance+state pension) at 20%. Does this mean 13,000 minus (3890+6210) (13,000 - 10100) = 2900 taxable at 20% = 580?

Regards
Barry

[ljukes]

If your total income is £13000 the first £9490 is not taxed.

The remaining £3510 is taxed  at 20% = £702

[ljukes]

Sorry, I've had another look at this.

If you subtract your state pension  £6210 from your Personal Allowance £9490 it leaves £3280 and you would be given a tax coding of 328L. This means that the £3280 would be untaxed but anything you get over that will be taxed at 20%. This is because, technically, your State Pension is not taxed (it is really because it's robbed from your personal allowance, another example of Stealth Tax)

[BarryH]

Thanks for the help, I'd been "taxing" my state pension twice.