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Where Taxpayers and Advisers Meet

Tax Allowance on Pension or Income?

limetree
Posts:6
Joined:Sun Jan 11, 2015 3:15 pm
Tax Allowance on Pension or Income?

Postby limetree » Fri Aug 13, 2021 5:00 pm

My wife has just taken NHS retirement, but is continuing to work under the NHS retire
and return scheme. She has received a P45 for her old job and has been advised to send
it to either the NHS pensions people, or her employer so that her annual tax allowance is applied
correctly to either her pension income or her new working income. Please can anyone advise which
is best, having the tax allowance applied to the NHS pension income or work income.

strawn
Posts:72
Joined:Fri Jun 01, 2012 10:11 am

Re: Tax Allowance on Pension or Income?

Postby strawn » Fri Aug 13, 2021 6:36 pm

Inexpert answer: for convenience I'd incline to attach it to the pension. Then if I decided to give up my job I'd still gain the tax relief without further fuss.

I'm assuming that her annual pension will exceed her annual Personal Allowance against income tax.

ben_power
Posts:69
Joined:Tue Feb 27, 2018 8:34 pm

Re: Tax Allowance on Pension or Income?

Postby ben_power » Tue Aug 17, 2021 8:36 pm

Both her pension income AND her employed income count towards her personal income tax allowance so the end result is exactly the same. I'm not sure about which department needs it, so send to both.

She should be aware of the 'abatement rule' within the NHS which may apply. The abatement rule states that her new income (employed and pension income combined) must not exceed her previous full time employed income, if it does they will deduct the excess from her pension income until her hours reduce OR retires fully. This rule doesn't apply if she has reached her normal retirement age and it can be easily checked by calling NHS pensions.

It would also be sensible to join the new pension that will be offered to her. This will be a defined contribution scheme and NOT the previous defined benefit version but her employer will also contribute meaning that she will accrue a further smaller pot.

robbob
Posts:3208
Joined:Wed Aug 06, 2008 4:01 pm

Re: Tax Allowance on Pension or Income?

Postby robbob » Wed Aug 18, 2021 8:22 am

ben_power
Both her pension income AND her employed income count towards her personal income tax allowance so the end result is exactly the same. I'm not sure about which department needs it, so send to both.
You should never send a P45 to multiple employers - if you do this its highly likely they will both duplicate that same code and the tax will be wrong you will severley underpay tax if both employer/pension co action a full tax code !

You may be better served by ringing hmrc and asking them to allocate allowances v new employer as best suits you - normally it would be all against highest income source if that exceeds personal allowance of 12570 (presuming no marriage transfer) - if both income sources are below this sum simply allocate enough against highest income and remainder against smaller income. Review splits each time you get new tax code.

Ideally request that codes are donee on cumulative basis - hmrc can send prior income details to relevant payer along with tax code changee.

You may need to tough it out on w1/m1 codes this year unfortuantely if that is the case do your own manual calcs if you wnat to ensure tax deducted is correct roughly speaking

ben_power
Posts:69
Joined:Tue Feb 27, 2018 8:34 pm

Re: Tax Allowance on Pension or Income?

Postby ben_power » Wed Aug 18, 2021 3:35 pm

Interesting point about not sending to both, thanks for correcting my error.

limetree
Posts:6
Joined:Sun Jan 11, 2015 3:15 pm

Re: Tax Allowance on Pension or Income?

Postby limetree » Fri Sep 03, 2021 11:48 am

Thanks to everyone who has posted replies.
The HMRC have currently allocated 1275L to income and BR to pension. In reality it probably
doesn't make any difference currently as both income and pension amounts are above the allowance
threshold, if this situation changes then the allocation arrangement will need to be reviewed.


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