New Oap New Tax Code-Is It Correct ?

[Dinger2]

At age 65 last week, I am awaiting my 1st pension payment in a couple of weeks . I have completed all the questionaires on line .I know what I am about to receive. What I would be grateful for is if any A/B.ers out ther e with any Tax knowledge can tell me about a letter from HMRC today informing me of my new tax- code change for 2015/16 --from 1060L -- to 515L which is almost exactly half. As far as I can remember when I was in industry the higher your tax-code the less you pay and the lower your code the more you pay. So, understanding that my working/earning/employment life is over and I will no longer be an earner in theory, Why has the HMRC decided to slash my code in half ? giving me double the tax liability - or have I got it wrong?? It doesn't seem fair to me . Any advice please ??

[twix123]

Your State Pension will be paid to you without deduction of Income Tax. Your tax re-coding takes into account your pension of £5450 per annum and any tax due will be deducted from any other earnings you may have.

[New Judge]

The reason is that although the State pension is paid free of tax, it actually forms part of your taxable income. In order to recover the tax due HMRC reduces your tax free personal allowance by the amount of your State pension. In your case it has been reduced by £5,450 (from £10,600 to £5,150) meaning you should expect a State pension of £5,450 (about £104.80 per week). This means you can earn (or receive in other income such as occupational pension payments) £5,150 a year before paying any tax.

[fiction-factory]

If your only income is your state pension plus maybe a small personal/company pension then you still won't have to pay any tax, so the change in code won't make any difference to you.

[MallyJ]

Thanks for asking this question and thanks to those who answered .... I was wondering just that myself.

[fiction-factory]

Also bear in mind that if you were working before you probably had National Insurance deducted but will not have it deducted from your pension

[boxtops]

If you are going to work again, don't forget to get an NI exemption certificate and give it to your employer, so they don't deduct NI once you are in receipt of your pension.

[venator]

The Personal Allowance for 2015/16 is £10600, and tax codes are expressed as a tenth of that ie 1060.

As you haven't retired yet, you will still have income in 2015/16, and it appears that HMRC may have used £5450 of your allowance against that figure as expected income.

If this doesn't make sense it's worth speaking to them.
Your notice of coding will have a contact number, and HMRC are quite helpful. It may take a while to get through, but hang in there!

I wish you a happy retirement. It's a lovely feeling to wake up in the morning and to realise you don't have to go anywhere!

[venator]

Ouch! got it wrong - New Judge has it spot on correct!