my parents pension - and tax allowance
Discussion
Hi all - first time posting in finance section.
Ok - my parents - don't have very much money firstly - so this isn't about evading tax on a 600k lump sum!
Apparently the old man has had a letter this morning (just turned 65) from HMRC saying they are taxing him on his pension income.
I need to talk to him properly to get numbers etc - but basically he and my mother are both recieving state pension......and my father has a personal pension from working for one company his whole life.
I don't know the numbers involved yet - but I guess my question is what is the allowance for 2 people receiving pensions like this?
Is it basically exactly the same as anyone from an income tax perspective?
thanks in advance?
Ok - my parents - don't have very much money firstly - so this isn't about evading tax on a 600k lump sum!
Apparently the old man has had a letter this morning (just turned 65) from HMRC saying they are taxing him on his pension income.
I need to talk to him properly to get numbers etc - but basically he and my mother are both recieving state pension......and my father has a personal pension from working for one company his whole life.
I don't know the numbers involved yet - but I guess my question is what is the allowance for 2 people receiving pensions like this?
Is it basically exactly the same as anyone from an income tax perspective?
thanks in advance?
They are taxed as individuals so whether or not any tax is due will depend on each of their individual allowances and income.
Their personal (tax free income) allowance will depend upon their age, total income and they may also get married couples allowance (depending on thier date of birth) so it is difficult to say without knowing all the details. At the very least they are each entitled to the current basic PA of £8,105 per annum.
State Pension is paid gross but is taxable income and can often be at a level which is more than the personal allowance. As a result of this HMRC will look to collect a taxpayers tax liability from their other sources of income which can be taxed at source. I would suggest this is what is happening to them.
I would suggest having a look at their income levels and attempting to caclualte the tax your self to check it is correct as it probably not too difficult. Failing that, I am sure a good local accountant would work this all out for you for a minimal fee.
If you want to ask any more specific questions via PM please feel free.
Their personal (tax free income) allowance will depend upon their age, total income and they may also get married couples allowance (depending on thier date of birth) so it is difficult to say without knowing all the details. At the very least they are each entitled to the current basic PA of £8,105 per annum.
State Pension is paid gross but is taxable income and can often be at a level which is more than the personal allowance. As a result of this HMRC will look to collect a taxpayers tax liability from their other sources of income which can be taxed at source. I would suggest this is what is happening to them.
I would suggest having a look at their income levels and attempting to caclualte the tax your self to check it is correct as it probably not too difficult. Failing that, I am sure a good local accountant would work this all out for you for a minimal fee.
If you want to ask any more specific questions via PM please feel free.
RacerMDR said:
thanks guys - the old man is having a bit of a meltdown about paying tax etc - so just trying to get to the bottom of it.
He was under the impression at 65 that he was entitled to 10500.......rather than 8105.....
any truth in that do we know?
That is the higher age allowance for those between 65-74. However, he may not get this as it is reduced down to the usual allowance as your income gets higher. Also, if his income is over this (which with state and private pension it probably is) he will still have a tax liability.He was under the impression at 65 that he was entitled to 10500.......rather than 8105.....
any truth in that do we know?
As Eric says checking the tax code will be a priority as it will tell you what HMRC think his income is and his allowances are etc.
It's amazing how many pensioners experience problems with coding. It is an area of the PAYE system where HMRC are more likely to get it wrong rather than right.
It might be worthwhile getting in touch with an accountant to provide a "health check" on coding matters.
The year that the state pension starts can be the most difficult because the state pension amount received in that tax year will be less than the full annual amount - so the allocatiomn of the PAYE coding will be a bit odd in that first year.
A person who reaches the age of 65 is entitled to additional personal allowances (as Torro Rosso says) but the extra allowance is then reduced by 50p for every pound that the pensioner's total annual gross income exceeds £25,400.
This adds another layer of complexity onto pensioners' taxation which can cause HMRC coding problems.
It might be worthwhile getting in touch with an accountant to provide a "health check" on coding matters.
The year that the state pension starts can be the most difficult because the state pension amount received in that tax year will be less than the full annual amount - so the allocatiomn of the PAYE coding will be a bit odd in that first year.
A person who reaches the age of 65 is entitled to additional personal allowances (as Torro Rosso says) but the extra allowance is then reduced by 50p for every pound that the pensioner's total annual gross income exceeds £25,400.
This adds another layer of complexity onto pensioners' taxation which can cause HMRC coding problems.
Eric Mc said:
It's amazing how many pensioners experience problems with coding. It is an area of the PAYE system where HMRC are more likely to get it wrong rather than right.
Eric - in my experience they never get anything right. I can't tell you how wrong they have been on every single occasion i've dealt with them.Anyway - that aside - his income will be under the 25k.......and as such he should be entitled to the full 10500 personal allowance as far as I can tell.
He is also 65.
They have sent him a letter saying he isn't entitled to it - but I think its a mistake.
Thanks again for all the advice.
Althugh most pensioners balk at the suggestion, one of the best ways to ensure HMRC get the right information is for the pensioner to start filling in Self Assessment tax returns. It can be a pain but at least it allows you to work out what the true situation should be - and then tell HMRC where they are going wrong.
Eric Mc said:
Althugh most pensioners balk at the suggestion, one of the best ways to ensure HMRC get the right information is for the pensioner to start filling in Self Assessment tax returns. It can be a pain but at least it allows you to work out what the true situation should be - and then tell HMRC where they are going wrong.
I agree, by far the easiest way of dealing with these cases - most people could have it completed in less time than they would sit 'on hold' trying to phone HMRC!My mum is in a similar situation, though she's 61.
Bear in mind that HRMC will give you a different tax code (i.e., not starting 810) because the state pension is untaxed but still counts towards taxable income.
As such his tax code will start ((10500 - STATE PENSION AMOUNT)/10) so only the first £4,500 or so of non state pension income is tax free, in addition to the whole of the state pension amount. I don't have those figures in front of me though.
Bear in mind that HRMC will give you a different tax code (i.e., not starting 810) because the state pension is untaxed but still counts towards taxable income.
As such his tax code will start ((10500 - STATE PENSION AMOUNT)/10) so only the first £4,500 or so of non state pension income is tax free, in addition to the whole of the state pension amount. I don't have those figures in front of me though.
CYMR0 said:
My mum is in a similar situation, though she's 61.
Bear in mind that HRMC will give you a different tax code (i.e., not starting 810) because the state pension is untaxed but still counts towards taxable income.
As such his tax code will start ((10500 - STATE PENSION AMOUNT)/10) so only the first £4,500 or so of non state pension income is tax free, in addition to the whole of the state pension amount. I don't have those figures in front of me though.
Remember that people will have different state pension levels so each case will be different.Bear in mind that HRMC will give you a different tax code (i.e., not starting 810) because the state pension is untaxed but still counts towards taxable income.
As such his tax code will start ((10500 - STATE PENSION AMOUNT)/10) so only the first £4,500 or so of non state pension income is tax free, in addition to the whole of the state pension amount. I don't have those figures in front of me though.
Also, if someone is in receipt of 10.5k state pension at 61, this will be more than the standard Personal Allowance they are entitled to so none of their other income will be 'tax-free'.
Toro Rosso said:
CYMR0 said:
My mum is in a similar situation, though she's 61.
Bear in mind that HRMC will give you a different tax code (i.e., not starting 810) because the state pension is untaxed but still counts towards taxable income.
As such his tax code will start ((10500 - STATE PENSION AMOUNT)/10) so only the first £4,500 or so of non state pension income is tax free, in addition to the whole of the state pension amount. I don't have those figures in front of me though.
Remember that people will have different state pension levels so each case will be different.Bear in mind that HRMC will give you a different tax code (i.e., not starting 810) because the state pension is untaxed but still counts towards taxable income.
As such his tax code will start ((10500 - STATE PENSION AMOUNT)/10) so only the first £4,500 or so of non state pension income is tax free, in addition to the whole of the state pension amount. I don't have those figures in front of me though.
Also, if someone is in receipt of 10.5k state pension at 61, this will be more than the standard Personal Allowance they are entitled to so none of their other income will be 'tax-free'.
CYMR0 said:
Agreed on the differing amounts. 10500 in this case is the 65-year-old's personal allowance, not the level of state pension though, just to be clear - and of course if he receives any other taxable benefits in kind, this might reduce the tax coding further.
My bad, misread that. 
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