Old age pension tax question
Discussion
If my only source of income is the pension...how will they tax it when it goes over the threshold?
My neighbour gets his full amount every 4 weeks but as his work pension takes him over, tax is taken off that,which I can understand .but will my pension ,in effect, go down?
Or will it be the usual lies eg pension atm under the limit they say it is going up, triple lock etc, by 20.00 pw but will i only get 16.00 of that as it takes me over 12750?
My neighbour gets his full amount every 4 weeks but as his work pension takes him over, tax is taken off that,which I can understand .but will my pension ,in effect, go down?
Or will it be the usual lies eg pension atm under the limit they say it is going up, triple lock etc, by 20.00 pw but will i only get 16.00 of that as it takes me over 12750?
"State Pension Only (if exceeding allowance): HMRC collects any tax due after the tax year ends via a Simple Assessment tax bill"
"Simple Assessment is a method of assessing income tax due in certain straightforward cases where a Self Assessment tax return is not required and where tax cannot be collected via the Pay As You Earn (also known as PAYE) system."
"Simple Assessment is a method of assessing income tax due in certain straightforward cases where a Self Assessment tax return is not required and where tax cannot be collected via the Pay As You Earn (also known as PAYE) system."
At the present time, anyone whose only source of income is a State Pension is receiving total income below the personal allowance of £12570, so has no income tax to pay.
Anyone who has other income, such as a private pension and/or savings that takes their total income over the personal allowance, has income tax to pay. If there's a private pension the tax will usually be deducted from that private pension by the provider of the pension just like PAYE when at work. If there's no private pension but only savings income, that income will be paid gross ie without any tax deduction, so in this case HMRC after the end of each tax year send you what's called a Simple Self Assessment Account showing the source of all your income that has been reported to them by various providers (the providers are required to do this by law), and you must pay the tax due by the following 31 January. If this other income is from a number of sources and is complex it is likely that you will be told by HMRC to complete a self assessment form for each tax year.
If, like you, after 6 April 2027 your only source of income is a State pension and the amount exceeds the personal allowance, this government has said you will not pay income tax on the amount over the personal allowance. I'd expect this to be confirmed in the forthcoming budget because its a rare piece of good news from this government! Nothing has been published as to how this new tax concession will operate. Ideally, the DWP will find a way to pay the full State pension without any tax implications, and HMRC will find a way to co ordinate their records so that they know your total income details etc and you'll have no tax to pay, no self assessment forms to complete for HMRC, etc. However, government departments are notorious for making things far more complex that they need be, so we need to wait and see the details about how this will all work.
That's my understanding of the situation.
R.
Anyone who has other income, such as a private pension and/or savings that takes their total income over the personal allowance, has income tax to pay. If there's a private pension the tax will usually be deducted from that private pension by the provider of the pension just like PAYE when at work. If there's no private pension but only savings income, that income will be paid gross ie without any tax deduction, so in this case HMRC after the end of each tax year send you what's called a Simple Self Assessment Account showing the source of all your income that has been reported to them by various providers (the providers are required to do this by law), and you must pay the tax due by the following 31 January. If this other income is from a number of sources and is complex it is likely that you will be told by HMRC to complete a self assessment form for each tax year.
If, like you, after 6 April 2027 your only source of income is a State pension and the amount exceeds the personal allowance, this government has said you will not pay income tax on the amount over the personal allowance. I'd expect this to be confirmed in the forthcoming budget because its a rare piece of good news from this government! Nothing has been published as to how this new tax concession will operate. Ideally, the DWP will find a way to pay the full State pension without any tax implications, and HMRC will find a way to co ordinate their records so that they know your total income details etc and you'll have no tax to pay, no self assessment forms to complete for HMRC, etc. However, government departments are notorious for making things far more complex that they need be, so we need to wait and see the details about how this will all work.
That's my understanding of the situation.
R.
Bluevanman said:
I thought they said if the state pension was your only source of income and took you over the personal threshold they wouldn't collect any tax from you
That's my recollection too. Some sort of exception from the normal tax regime. I guess it would also allow pensioners the £1,000 of savings income tax free.I believe they're already playing tricks like sending everyone a Winter Fuel Allowance and then claiming it back under Self-Assessment.
TwigtheWonderkid said:
Current SP is £12547. In 2027 it'll go up to £13036. That's an increase of £489/year. Of that you'll keep 100% of £23 and 80% of £466 so £396 extra in total. I think.
What bugs me, is when one government department gives it out and another takes it back. Sounds like bureaucratic waste to me.
Panamax said:
Bluevanman said:
I thought they said if the state pension was your only source of income and took you over the personal threshold they wouldn't collect any tax from you
That's my recollection too. Some sort of exception from the normal tax regime. I guess it would also allow pensioners the £1,000 of savings income tax free.I believe they're already playing tricks like sending everyone a Winter Fuel Allowance and then claiming it back under Self-Assessment.
As for the WFA, it is paid to all receivers of State pension, then reclaimed in full via self assessment if the person's taxable income from all sources exceeds £35,000. It's possible to tell DWP/HMRC that you wish to forgo receiving the WPA so as to avoid this crazy admin system of giving with one hand and taking it away with the other.
R.
Pit Pony said:
What bugs me, is when one government department gives it out and another takes it back.
That's how governments and budgets work. Crow about the £10 handout at every opportunity but keep quiet about the £20 clawback somewhere else. 'Stealth Tax' is a term associated with Blair and Brown but every government since has done it.Anyway, the impossibility of thousands of 80 and 90 year olds going online to do a self assessment tax return is not something a 20-year-old gnome in the Treasury would pause to consider. Yes, it would make good sense to raise the income tax threshold which has been stuck since 1572 but that costs money, and we haven't got any and we had to borrow just to maintain the triple lock which is now not so badly needed but Starmer promised to keep it so Burnham has to. Possibly the first time a party has kept a manifesto pledge? Now Burnham just has to batter his MPs into submission over welfare cuts, and I hope he succeeds.
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