Tax on state pension and work pensions in the first year of retirement

I have paid way too much tax and am rather confused by hmrc. When you start to collect state pension mid year, hmrc set tax codes to claw back money from your primary work pension. I understand the reason but not why they presumed to take way more tax than needed so that I will have paid 27.5 pence in the pound on my taxable income at the end of the tax year. It seems like they make an assumption you receive an amount of state pension equal to the whole of your annual state pension award in the current tax year even though you are getting paid the state pension for only a proportion of the first tax year in which you receive it. The problem I have is that I am not confident that at the end of the tax year they will have the knowledge of the actual state pension I actually received from the DWP in the first tax year which is less than the award because I only got it for a part of the tax year.

Hi,

When we perform the end of year calculation the system will take into account the weekly rate and the start date to determine your entitlement for the tax year. This will be taken into account in your calculation. The tax code is used on an emergency basis, which means it only takes into account 1/12 of the yearly State Pension amount each month the new tax code is applied.

Thank you.

Hi My State pension started after the start of this tax year but I am being taxed as if getting it from April 6th. So I am overpaying tax on the approximate 7 weeks of pension I am not getting as the tax code given assume I have a full year. What is more concerning is that My tax estimate on my HMRC account is showing the correct lower amount of income. So why am I being overtaxed and having to wait until June/July the following year 2024 to get my £285 back? I could understand it more if the estimate and actual calculation agreed but they do not. So if someone has a birthday say in February are they going to be taxed on a full state pension year? That would be an enormous over billing? Please can anyone explain if I can get my £285 overpayment reversed during the current tax year?

Hi
The full years amount of State Pension is entered into the tax code however it will only be used on the emergency basis, meaning that you will only pay tax on 1/12 of the State Pension each month.
It will not backdate to collect an amount that was before your entitlement started.
Thankyou.

I will start to receive my first payment of state pension on 24 November 2023, My current taxable allowance/tax code is 1263L and this is utilised 100% in relation to my first private pension. The current maximum state pension is £205/week (£10,660 per annum). I will get £191/week (£9975/annum). In the tax year to 5 April 2024 (23/24) that means I will actually receive only 6 months of state pension £191 x 26weeks = £4,966. Which of £10,660, £9975 or £4966 will be used to reduce my tax code in the current tax year and in what month/pay period can I expect that to happen?

Hi StanStan Stev,
Yes once the state pension starts we will receive the details from the department of works and pensions and we will amend your tax code to reflect this. 
Thank you.

My tax code notice under "This is how we worked out your tax code(s)" states that my Personal Allowance is £12 570, then Less State Pension of £10 244 Go to Note 2. Note 2 explains that the tax on the state pension is taken via reduction in the Personal Allowance and then states "We have reduced your tax-free amount by the estimated amount of pension we think you will receive this year". However I only receive 6 months State Pension in this tax year, the estimate should say £5 122. It appears that others above have the same query and I may be daft but I don't understand the response that the code is only an emergency code and only 1/12 per month will be taken. Must be old age but could you attempt again to explain what this means. Many thanks.

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Hi cipgp Pringle,
As the state pension starts part way through the tax year we will be collecting the tax over a shorter period so it would be a different amount than the actual state pension that is collected in the code.
If the source of income the code is used by is monthly pay then each month we would deduct 1/12 of the amount in the code.
For the amount in the code if you calculate 20% if you are a basic rate taxpayer and divide by 12 this will give the monthly tax paid.
If you multiply this by the months in the tax year that the code will be operated this will be the same tax if you work out the actual state pension received at 20%. 
Thank you.

I recently received a tax calculation from HMRC for 2024/2025 in which they have included benefits in kind as a deduction against my personal allowance. I left my former company at the end of August 2023 when these benefits ended, so why are they included in the next tax year's figures. The HMRC have also added a car fuel benefit of over £8000, something I have never had with that company having paid for any private mileage on a monthly basis. So added together, including state pension, it comes to over £30,000 in deductions giving a tax code of K1660. They know I have left the company, they know I do not still receive any BIKs and they've even added one I have never had. You couldn't make it up.

Hi DK1966,
I am sorry if the benefits that ceased when you left your employment in the 2023/24 tax year have been included in your 2024/25 tax code. We will need to be amend your 2024/25 tax code. If you contact HMRC we can update this for you Income Tax: general enquiries.
Thank you.

The amount of Pension I should receive per annum is shown on my last tax code notification. but it does not match the amount I'm receiving. I receive less than 1/12th of that amount each month. But the pension shown on the notification, is used to calculate my tax code?

I have had a protracted exchange with HMRC to find out why I paid too much tax in the tax year when I began receiving my state pension. It appears that we need to ask HMRC to carry out a “tax table check”. I note also that I took a lump sum from a pension pot in one tax year, paid net of tax, and the same amount was automatically included as income on the following tax year's expected income when calculating the tax codes! Although I was able to change this myself online, it appears that this did not update the tax codes. Hope this helps!

Hi BobSpearing

For the state pension as the payments are received every 4 weeks the calculation will be 13 x 4 weekly amount. 

Thanks

So... Is it safe to assume that HMRC knows about the total amount of State Pension and Work Pension I receive? Do I need to file a Self Assessment on my Pensions income? Can I assume that HMRC will send a demand for tax if I need to pay tax on my Pensions?

Hi Skullcap,
Yes,HMRC will be informed of your pension details.
You can check your tax code online if you have a personal tax account here:
Personal tax account: sign in or set up
If you are unsure if your tax code is correct you can also contact HMRC to review:
Income Tax: general enquiries
No, you would not need to complete a Self Assessment tax return.
You can check if you meet the criteria for Self Assessment here:
Check if you need to send a Self Assessment tax return
At the tax year end HMRC will review your record and if tax is underpaid we will send a calculation to you. 
Thank you. 

I started to get my state pension in Nov 23 part way through the tax year 23/24. It's 17th of April 2024 into a new tax year and my payslip from my pension provider is showing a lower amount of net pay than I was expecting. I checked the tax code applied and I don't recognise it. I have a tax account with HMRC so I look to see what's going on. HMRC say, without identifying the specific tax year, that I have underpaid tax and my tax code needs to reflect that. What's odd about this is that HMRC also say I paid the right amount of tax for 22/23 but that my tax for 23/24 has not yet been calculated. Given that my tax has not yet been calculated for 23/24 why is my tax code taking a hit now? There can only be one source of tax underpayment and that will be 23/24 and related to the tax deducted by my pension provider as my tax code for 23/24 changed due to receipt of state pension. Given all that has been said above about how receipt of state pension flows through to how tax is deducted from pensions provided by pension schemes how can significant underpayments arise?

Hi StanStan Stev,
To advise you correctly, we would need to look at your code and your  tax record.
To allow us to do this, contact us by webchat or phone here:
Income Tax: general enquiries 
Thank you. 

 

I have been working 15 hours part time since November 2023 but turn 55 at the end of May 2024 and so have decided to take my Personal Private Pension from my previous employer of 34 years that I left in 2019. In March 2024 my tax code was changed from 1257L to 694L M1 and no tax but £0.96 NI was taken and this month the tax code has changed to 659L and I have been taxed £56.40 and NI of £16.95. On checking the Government Gateway site to establish how my Personal Allowance is calculated, it states that a State Pension is allocated to my account as well as Untaxed Interest on my Savings/Investments. Is 'State Pension' a generic title that is used and covers personal pensions or has a mistake been made ? Surely, I shouldn't be being taxed until I start to receive my pension ? Also, I will be ending my employment at the end of May 2024 and so will my tax code change again automatically and as my full years income of employment and pension should fall below £12570, will I get a rebate ?

Hi andyb7777 Beecham,
If you are now in receipt of a personal pension but not a state pension then there should not be a deduction for state pension in your code. To review this you will need to contact HMRCIncome Tax: general enquiries.
Thank you.