Tax on Private Pension

[pastafreak]

I am due to start recieving a private pension. I will also be paid arrears as I could have started collecting it last year.
How is tax paid on pensions-and at what rate?
If the money was to go into an ISA-would that make a difference?

[factor-fiction]

Tax is usually deducted at source now. Will your total income including any other you get take you above the personal allowance?

[factor-fiction]

Paying it into an ISA won't make any difference (other than you won't pay tax on any resultant interest), nor will the fact that you could have collected it earlier or are paid in arrears

[dasherman]

Tax is paid on pension income in the same way as it's paid on earned income.

So if you're currently under 65 the first £8,105 you recieve in wages and/or pension is tax free, everything else is taxed.
For over 65's the rate is £10,500, for the over 75's it's £10,660.

[hc4361]

Tax is usually paid at source so you receive your pension net of tax.
The income tax rate is 20%, or 40% for higher incomes.

[factor-fiction]

I think the default position though now for new payments is for pension providers to deduct tax at basic rate. I would assume though that someone who shouldn't pay tax can complete a declaration form so as to get it gross rather than have to wait until the end of the tax year to reclaim the tax paid

[factor-fiction]

Sorry hc4361- yours wasn't there when I started typing after seeing dasherman's post

[pastafreak]

Thank you so much for your quick responses-they have been most helpful.

[Pumbah]

Will you also be receiving (or are you already getting) the State Retirement Pension? This is not taxed at source, but is part of your taxable income, so it will be deducted from your Personal Allowance before your Tax Code is calculated and passed to your Private Pension Provider by HMRC. Do keep a record of ALL your income, and check HMRC's calculations and assumptions very carefully. Every year since I started getting the SRP I have had to "correct" HMRC's figures. The alternative is that, if they find you have underpaid tax they will reduce your code, and increase your tax, the following year, effectively reducing your pension. This applies even if they have not acted on "corrected" infomation you have sent them

[VHG]

I am getting a company pension but I am under 65 (so not state pension yet).

My pension is taxed at source, but every year I fill out a tax form, and every year I find I have overpaid tax by about £400 and get a refund.

So make sure you fill out a tax form or you may be losing out.

[Pumbah]

One other twist, pastafreak. If you are over 65, and getting the higher allowance which dasherman quoted (£10,500), this is reduced by £1 for every £2 you receive over £25,400. So if your private pension and your SRP come to, say, £26,000, they would reduce your allowance by £300.

[pastafreak]

I will not collect a UK SRP as I've not contributed enough. But-I will be due to collect my full US SRP next year. I am currently still working part time.

[dzug2]

If you are collecting a US pension as well it's a whole new ball game. You'll have the US tax authorities to deal with too.

Anyway - tax is paid on pensions at normal rates. Your tax code should ensure that you have paid the right amount - but if your affairs are complex it probabaly won't and will need sorting out after the event via your tax return and a refund paid or shortfall billed