Private pensions and PAYE
How your private pension is taxed, and why the second one is on BR
A private or workplace pension is paid through PAYE, exactly like wages: the provider uses a tax code from HMRC, takes the tax off and sends you a P60 each May. The confusion starts when there is more than one pension, or a State Pension as well, because your Personal Allowance can only be given once.
The basics
The provider runs PAYE
HMRC sends each pension provider a tax code. The provider applies it to every payment, takes off the tax and pays it to HMRC. You get a payslip, usually monthly, and a P60 after 5 April showing the year’s pension and tax.
The first payment is taxed on 1257L, month 1
Until HMRC sends a code, a new pension is taxed on the standard code 1257L on a month 1 basis, or on BR. A regular pension corrects itself within a few weeks once the proper code arrives; a large first lump sum needs a claim on P55, P53Z, P50Z or P53.
Your allowance is given once
HMRC puts your Personal Allowance, less your State Pension, into the code for one pension, normally the largest or the first one it knew about. Every other pension gets BR (all of it at 20%), or D0 or D1 if your income reaches the higher rates.
The total is what matters
Two pensions on the right codes pay the same total tax as one pension paying the same money. If the total looks wrong, the split is wrong, and it can be changed.
A worked example (2025/26)
Joan gets a State Pension of £11,973 a year, a workplace pension of £8,000 and a small personal pension of £6,000.
- Her Personal Allowance is £12,570. The State Pension uses up £11,973 of it, leaving £597.
- The £597 goes into the code for the workplace pension: code 59L. Only about £597 of that pension is tax-free; the other £7,401 is taxed at 20%, which is £1,480.20.
- The personal pension gets code BR: all £6,000 of it is taxed at 20%, which is £1,200.00.
- Total tax £2,680.20. Worked out the long way, (£25,973 of income − £12,570 of allowance) × 20% = £2,680.60. The same, give or take a pound from the way a code rounds.
When the split is wrong
The allowance is on the smaller pension
If the pension carrying your allowance pays less than the allowance, part of it is wasted: that pension pays no tax, but the other one on BR pays 20% on every pound. You overpay all year and get it back through a P800 after 5 April. Ask HMRC to move the allowance to the larger pension.
Both pensions were given the full allowance
Usually because a new provider used the standard code 1257L before HMRC sent the right one, and it was never corrected. You pay too little and a bill follows. Ask HMRC to put one pension on BR.
The State Pension is not in either code
In the first year of the State Pension the code often lags behind. Tax that should have come off during the year turns up later as an underpayment.
A pension that has stopped is still in the code
When a pension ends or a lump sum is taken, HMRC’s estimate for it can stay on file and distort the codes on everything else. Check the sources listed in your Personal Tax Account.
Example: an allowance of £12,570 on a pension of £6,000 wastes £6,570 of allowance, while the £20,000 pension on BR pays £4,000. Moving the allowance to the larger pension saves £1,314 a year.
What to ask HMRC for
- 1
Ask for your Personal Allowance to be set against your largest pension, or split between pensions in the proportions you choose. HMRC can do either.
- 2
Check every pension and job listed in your Personal Tax Account under PAYE, with the estimated income for each. Remove anything that has ended and correct the estimates.
- 3
If you have overpaid in an earlier year, you do not need a form: HMRC’s P800 calculation refunds it after the year end. If it has not arrived by the autumn, ring and ask.
- 4
Keep every P60 and the coding notice for each pension. When a code changes, the notice says which source it is for.