chrisrct wrote:Hi there, in a couple of years I will retire at 60, my birthday is in November, my pension will be about £10000 pa, will I pay tax on this until the new tax year in April , I am a full time postman on basic wage,thanks.
If you're in regular employment then your income tax is fairly easy to understand.
As many posties are paid weekly, then we effectively have a weekly Personal Tax Allowance(PTA) of £240.38(£12,500 divided by 52), with any earnings over that being taxed.
But when you change jobs or retire your tax liability can get muddied. For example:
Fred works for RM for 52 weeks of the financial year and earns £480.77 per week, making a yearly total of £25,000. He pays 20% tax on half his earnings and therefore pays £48.07 per week in tax.
Eddie works for RM for the first 26 weeks of the financial year and earns £480.77 per week, making a total of £12,500. HMRC assume he's going to be earning the same amount for the full year and also pays £48.07 per week in tax. He then leaves RM and doesn't work again or have any other income for that year.
As his income was equal to a full years PTA, he should get a full refund of the tax he's paid - of £1,250.
Harry also works for RM for the first 26 weeks of the year and earns the same as Fred and Eddie. HMRC assume he's going to work for the full year and gets taxed the same. He then leaves and takes his pension, which pays out £5,000 for the remaining 6 months of the financial year. Therefore he has a total income of £17,500.
As he paid tax at 'full rate' for the first 6 months, he should also receive a refund, but that will be offset by his £5,000 pension income. Meaning a refund of £250.
I hope I've worked that out correctly and it makes sense.
In practice it often takes a while for HMRC to sort out your tax code - usually by the end of the tax year. You may pay tax on your pension initially, but you will be entitled to a refund. So it's probably best to tell them when you retire that you're situation had changed, rather than waiting for them to find out.