Income tax explained
Your LGPS pension is a taxable income, but any lump sum is paid tax free. The amount of tax that you pay on your pension depends on your total income across all sources.
Your first pension payment
Your first pension payment will be subject to the emergency tax code, as determined by HMRC on an annual basis.
If we have received a P45 for the current tax year with your forms, the tax code on that form will be used but on a month one basis. This means that we will only give you one months’ worth of tax allowance before deducting tax at 20% and/or 40% (depending on the amount of the payment), even if you are receiving arrears for a few months.
This will then be reported to The HM Revenue and Customs Office (HMRC) who will determine your correct tax code and notify us electronically. This will often generate a tax refund, where applicable, which will be paid in your next pension payment.
HMRC can instruct us to update your tax code throughout the year which may result in a refund of tax paid or any arrears of tax due being collected.
Please note: we cannot amend your tax code without instructions from HMRC and cannot contact the tax office on your behalf.