tax on state pension

[maclarencat]

Can anyone help me please. My husband is 66 and receives state pension which includes an element for me as I am only 58 and do not work now. His new tax code means that he is now paying tax on his state pension. He has 2 small private pensions on which he pays tax at a BR on one and now a K code on the other. Now the state pension increased by around �10 per week but under the new tax code he is paying �50 per month more tax. I rang the tax office and was told this is correct. Now I know that this cant be so but am wondering if he underpaid tax last year as the amount that was used to calculate his tax code last year was about �2800 less than he actually got( I thought this was the amount he received for me). Does anyone know if the additional amount he gets for me should be taxed? And if so is it possible for me to give him my tax allowance?

[albaqwerty]

it's been a very long time sice i was involved in tax codings, etc, but i would think you should be able to transfer most or all of your tax allowances to him.
if possible, could both of you visit your local tax office rather than phone, as i found them more helpful and responsive face to face.

[maclarencat]

Thanks I will do that but as this has happened today I just wondered if anyone knew. The last thing I want to do is rattle their cage if we did underpay last year. I am already highly incensed that we have to pay tax on our state pension as well as the private ones. I wish I was a banker I wouldnt mind paying if we had �3million a year! But our income is quite low ( we are eligable for some council tax benefit �1.20pw not a lot I know but it shows we are not talking huge amounts of income)

[Ethel]

You cannot transfer personal allowances between spouses - there is no longer a 'married person's tax allowance' except for those born before 1935, or over 75.

Your husbands personal allowance should be �9490.

Now, your husband's situation is confusing. A K code means he should be paying LESS tax on that income. If the code is K10 he should have an extra �100 per year tax free on that income.
I would say that what is happening is your husband is paying tax at basic rate on all the income that has the BR tax code, with no personal allowance.

His personal allowance is given to the K code income, meaning he pays far more tax on one income, far less tax on the other, but overall pays the correct amount due.

Add up all his gross incomes for the coming year (multiplying each income by 12 or 13 as appropriate) so you have one amount.
Take off his tax allowance of �9490 and he should be paying 20% of the remainder in tax.

Hope that is a bit clearer.

[albaqwerty]

could i also suggest you give this post a couple of days in case someone with more knowledge and up to date info logs on and replies with better info.
good luck with the situation, hope it works out well

[Ethel]

This may help clarify the situation re transfer of personal allowance (you can't) and married couple's allowance (not applicable to you).

Tax Planning for Married Couples

Income tax allowances and tax bands

Everyone is entitled to a basic personal allowance. This allowance cannot however be transferred between spouses.

If either you or your spouse were born before 6 April 1935, a married couple's allowance is available. This is given to the husband, although it is possible, by election, to transfer it to the wife.

[maclarencat]

Thanks Ethel. I thought that was the situation with the tax allowance. I have asked for a copy of the new tax code and a breakdown from the tax office as we havent been notified and didnt know until my husbands private pension went into the bank and was �50 light. That when I rang the tax office. His state pension incluyding an amount of around �50 for me is �185pw so this exceeds his limit by �200 and they have put a K20 code on one of his private pensions and a BR on the other. I guess it will be right. I am just shocked that nothing has changed other than his state pension and yet we are �50 a month worse off

[kags]

Ethel - a K code does not add tax free income, it does the opposite - it adds taxable income that cannot be taxed directly, in this case maclarencat's husband's state pension. So a k code would certainly increase the tax paid.

maclarencat - if you can give some figures for the amounts of pensions then we can calculate how much tax should be due. As Ethel has pointed out, it is not possible to transfer tax allowances, but when you become 60 you should be able to claim a pension in your own right against which you can use your allowances.

[kags]

sorry maclarencat, your last reply wasn't there when I started typing!

�50 a month is effectively tax on �3000 of income a year, which sounds to be the amount of pension not previously included in the code. It does also sound as if there may be an underpayment from when your husband started to receive state pension, but it is not clear yet whether HMRC are going to pursue this. If they do and it is their mistake, you should dispute it.

[maclarencat]

Thanks kags. I have worked out that the tax code is correct and that the amount we have been deducted is correct. They must have got it wrong last year! I have found last years coding notification and the amount they used for the state pension was incorrect. I am not telling them! Though they may well find out for themselves. I just find it amazing that on the one hand the local council says that our income is so small they do not expect us to pay full council tax and on the other hand the IR says no you have too much money so we will tax you. I have worked most of my life and only gave up work 4years ago when I had kidney cancer. My husband took early retirement to be with me. Fortunately I have recovered and we arelooking forward to a long life together but I wont be able to claim my state pension until I am 62 as I wasnt born until 1952 and my works pension isnt payable until I am 65 so we have a few more lean years to get through yet!