Personal allowance against pension or income?

Just a question for future reference.
My only reliable source of income at the moment is my (22 years) military pension, so my whole personal allowance is used against that before the taxman takes his 20%. Any seasonal work I get is all taxed at the basic rate. I hope to be in full-time, gainful employment next year once I've finished my course and I was wondering what to do with the personal allowance; Keep it all on the pension and pay 20% on all my earnings? Put it on my earnings and pay 20% on everything else? Split it between them?

I only ask because during the resettlement financial brief the advisor mentioned in passing that "you will all obviously put the allowance against your earnings" with out going into any detail why (my brief calculations saw no advantage either way). Also I had my allowance split briefly between the pension and a summer job (something I didn't know was possible) until I asked for it to be changed back.

Any advice? What do those of you lucky enough to have a job do about it?


Brotherton Lad

Kit Reviewer
I don't see as it makes any difference, so long as the tax office, your employer and Xaffinity are all in the loop. You only get the one allowance and the Army pension counts as income, too. If you are likely to be switching employers frequently, it might be easier from an admin point of view to set the allowance against your regular pension. Just make sure your tax code is accurate.


I agree that it might be easier to set it against your pension as you could lose a job but your pension is on-going. Just keep the tax man informed so that your pay is taxed at the correct rate. There is no good time to get a bill for under-paid tax. Good luck in the new job.
If you are in the fortunate position of having a pension and a job and you are close to the 40% tax region (which kicks in around £44k gross) and you are concerned about your overall tax position, you will be much better off working out your tax on-line rather than chasing the taxman for the correct codes.

PAYE works because the taxman gets his hands on your money sooner and doesn't return any excess unless you notice and ask for it. If you are organised with your paperwork including all incomes, expenses, charitable contributions etc, logical thinking and are willing to do the work, you can now manage your own tax affairs on-line and settle the final bill at the end of January (for the previous tax year).

My pension and employment take me over the threshold, thus resulting in my 37 Year pension getting hammered.
if you make personal pension contributions this can 'extend' (aka increase) your personal alowance so you pay less tax!
Thanks for the replies. I've been getting by over the last few years on the pension (plus various student loans and grants and some summer work) so was quite happy to continue setting the allowance against the pension when/if I got a full-time career. It was just the almost throw-away line that the financial advisor came out with during the resettlement brief which got me thinking my arithmetic was wrong and I'd be missing some obvious money/tax saving option. If I ever come close to the 40% tax bracket I'll start worrying again.

Despite the well intentioned and well meaning posts on this thread, proceed with extreme caution.

Since leaving the Army I have had two incomes, my Army pension and my Salary. Each year I have submitted full and honest details on my tax return and without fail HMRC have screwed it up every single year.

For ten years they could not marry up the two incomes as they actually ignore the tax return and calculate using the figures from a single Tax Office, your employer's. This resulted in me being sent cheques in rebate up to £2000 pounds which were followed up straight away with demands for the same amount with interest and threats added.

At the ten year point I finally got them to tax my pension at 40% no matter what. A year later I was informed that I was the subject of a 'Tax Investigation' they demanded 15oo pounds then returned it then demanded it until I finally managed to bring the process to a close after eighteen months. Next thing, I receive a letter changing my tax code for both income streams. I just know that the merry go round is getting warmed up again.

Remember this is the HMRC that lost those discs and is currently trying to recover and repay millions in under and overpaid tax.

Oh by the way, if they send you a letter saying that 'this is your final calculation' do not believe it, because they do not mean it.

Good luck, you will need it.
i got laid off el sharpish as the agency that were supplying me had a dodgy payroll company, cut a long story short I had to go to an accountant as the deadline for tax returns was only a week away, bloke got me a rebate which covered his costs and gave some as well but he got the pensions team and the taxman together and as i was doing a course and therefore also only had my pension as income, my tax paid on the pension went down by approx 75%! to be fair the woman at the tax office was very helpful.
Must admit that when I got my first lot of paperwork from the pensions people it was followed very quickly by a tax code notice from Cardiff saying something to the effect that as I was earning soooo much money they would tax my pension at some ridiculous rate, as a favour. A phone call later this was changed back to 20% after the personal allowance was applied. Been one or two "what the hell are they playing at monents" since then but all sorted easily enough with a phone call. Have heard enough horror stories from others to know I've been quite lucky, so far.
HMRC have been having a torrid time and seem to be getting a significant minority of tax codes wrong. Although I'd love to say it was deliberate, I suspect it is more cock-up than conspiracy.

If you have multiple sources of income, you can ask for your tax code to be split between your income sources. The key here is to make sure that all of your codes add back to your personal allowance. HM Revenue & Customs: Tax codes - the basics The basic code for 2010/2011 is 647L, so your split codes should add back to this figure unless you have been issued with a notice of coding with an explanation of something different.

If you don’t understand the coding differences, ask HMRC, the helpline is almost helpful!
I was subject to a tax coding change in April 2010 due to the "new tax computer system".

The personal tax threshold currently set at 647L has been applied against my military pension, as this income is retained for life. The BR tax coding is applied against the main wage as this is subject to change through unemployment etc.

The "new computer system" in operation by HMRC is applying this to multiple income sources.

If your pension is below £6470.00 per annum gross (before taxation deductions) the calculations become a little more complex requiring the outstanding personal tax threshold to be applied to the main source of income prior to BR (basic rate @ 20%) being applied. If this is the case, I would be inclined to ask for the BR tax coding to be applied to the pension thereby simplifying the tax calculation.

If your pension is above £6470.00 gross it would appear to make sense to apply the personal tax threshold against this with remaining income sources being "BR".

If you are fortunate enough to be on the higher tax threshold of 40%, this may well complicate things further. If in doubt, phone HMRC and they will be able to advise you.


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