Royal London have issued a guide for its pension customers who may be affected through incorrect tax codes causing too much tax to be taken from their pension.
The headline figure of 800,000 people affected is targeted at those who are under state-pension age but receiving income from pension plans. These people are likely to be under the personal allowance tax threshold yet are having tax deducted at source by the pension provider and then forwarded to the Taxman.
The tax-free allowance this year is £11,500 and was £11,000 last year but there are fears that for those that have not been keeping track the over-taxation could have been taking place for multiple years.
Normally those who submit a tax return at the end of the year have an opportunity to reconcile all the years income and make sure the correct amount of tax has been paid and any adjustments can take place at that point. However, those who do not submit a tax return should check their current and past income to see the amount of tax they should have paid and then query this if a discrepancy is uncovered.
To recap:
- If a person is drawing income from a pension and is under state pension age but their total income is below the personal allowance limit then no tax should be deducted from the pension.
- If a person has multiple sources of income and has been given tax codes for each income source then they should make sure that the tax deducted is correct once the income is combined for the tax year.
- Use our multiple income tax wizard to check what the correct tax should be. Multiple income sources can be added (Pension income should be entered in 'NIC Exempt' box). The calculator allows tax to be calculated for any tax year from 2003 to the current 2017 tax year.