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Tax Misery for State Pensioners
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bigheadxx
Posts: 3,047 Forumite
Whilst this has not received any public attention it is potentially a big problem for many State Pensioners who have no other income or pension.
The State Pension is taxable yet it is paid without tax being deducted. Further to this there is no mechanism to pay tax on it other than via self assessment.
If your state pension is more than your personal allowance for the tax year and you do not have another pension then you have to fill in a self assessment form and make a payment to HMRC (if you have an occupational or private pension you are taxed at source with state pension taken into account)
Many low income pensioners are not aware of this and have therefore not paid the correct tax, there tax liability has just jumped from 10% to 20%. at this time of life why should they have to mess around with self assessment anyway?
It also means that calculations for Pension Credit may have been wrong if you have used the online calculator.
I hope others are as interested in Justice for Pensioners as I am (I am 32)
The State Pension is taxable yet it is paid without tax being deducted. Further to this there is no mechanism to pay tax on it other than via self assessment.
If your state pension is more than your personal allowance for the tax year and you do not have another pension then you have to fill in a self assessment form and make a payment to HMRC (if you have an occupational or private pension you are taxed at source with state pension taken into account)
Many low income pensioners are not aware of this and have therefore not paid the correct tax, there tax liability has just jumped from 10% to 20%. at this time of life why should they have to mess around with self assessment anyway?
It also means that calculations for Pension Credit may have been wrong if you have used the online calculator.
I hope others are as interested in Justice for Pensioners as I am (I am 32)
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at this time of life why should they have to mess around with self assessment anyway?
Why shouldnt you? The HMRC dont know if you are earning 10k, 50k or £100k.
I also believe you are incorrect about self assesment because the HMRC adjust your tax code by the state pension amount annually automatically. Only if you need to pay more or pay less would you need to inform them and there is usually no need to use the full self assessment forms for this.
Basically, the only pensioners filling in tax returns every year will be those with a need to. So, on that basis I see no misery and no injustice.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
Many low income pensioners are not aware of this and have therefore not paid the correct tax, there tax liability has just jumped from 10% to 20%. at this time of life why should they have to mess around with self assessment anyway?
The personall allowance for over 65s was raised to £9030 and for over 75s to £9180 so it would be unlikely that anyone just relying on the state pension to need to pay any tax.
Some women aged 60 to 64 may possibly have to pay tax as their personal allowance is only £5435.I also believe you are incorrect about self assesment because the HMRC adjust your tax code by the state pension amount annually automatically.
The adjustment to the tax code would only happen if you have income other than the state pension, i.e. another pension. If you only have a state pension there is no tax code to adjust.
I believe in this instance the short tax form would be enough.0 -
The adjustment to the tax code would only happen if you have income other than the state pension, i.e. another pension. If you only have a state pension there is no tax code to adjust.
Do you mean the "basic state pension", jem? Quite a lot of people have state pensions which are much higher than this, higher even than the age allowance. The top state pension payout at present is something like 12k p.a IIRC, not too many get that, but 10k a year is pretty common. Add in some savings interest and you're well into tax territory..I believe in this instance the short tax form would be enough.
Indeed so, most pensioners will only need the short tax form.Trying to keep it simple...
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EdInvestor wrote: »Do you mean the "basic state pension", jem? Quite a lot of people have state pensions which are much higher than this, higher even than the age allowance. The top state pension payout at present is something like 12k p.a IIRC, not too many get that, but 10k a year is pretty common. Add in some savings interest and you're well into tax territory..
I wasn't meaning anything to do with how much you get from the state pension. I realise that some will get £10k or more. With the new allowances most pensioners will not pay any tax although obviously some will.
What I was referring to was the method use to take tax from the state pensions. When you have taxable income from another source on the PAYE system like a personal or company pension you will have a tax code. That tax code will be adjusted to take into account your state pension/s and tax is deducted that way. If your only taxable income(other than savings interest) is the state pension/s the there is no PAYE code to adjust so tax has to be taken another way - i.e. a tax return.
Which is why I said that the short tax return would probably suffice for most pensioners with only state pension/s and perhaps savings interest. Not exactly onerous.
Even the full tax return is not all that difficult - mine just took around 30 minutes.0 -
I think any pensioner aged between 60 and 65 will have a tax liability even if they only have a basic pension topped up with pension credit. I believe this gives an income of approx £120 a week (£6240) which will take them over their tax free allowance. Also if their rent and council tax is paid this provides another chunk of tax free income.
However as you say there is no mechanism for deducting tax from income solely from a pension so nothing happens and the tax is unpaid. Sometimes it really does not benefit to have scrimped during your working life to save for your retirement.0 -
krisskross wrote: »I think any pensioner aged between 60 and 65 will have a tax liability even if they only have a basic pension topped up with pension credit. I believe this gives an income of approx £120 a week (£6240) which will take them over their tax free allowance. Also if their rent and council tax is paid this provides another chunk of tax free income.
But aren't these benefits, which are not taxable?Trying to keep it simple...0 -
EdInvestor wrote: »But aren't these benefits, which are not taxable?
I suppose the pension credit element is, hadn't thought of it like that. I just know that I get taxed on my state pension. So it really does pay not to save, claim benefits and not even have to pay tax. Bloody hell I have been so stupid.0 -
krisskross wrote: »I suppose the pension credit element is, hadn't thought of it like that. I just know that I get taxed on my state pension. So it really does pay not to save, claim benefits and not even have to pay tax. Bloody hell I have been so stupid.
I completely disagree with you.
I have been 'so stupid' because I could have saved a lot more!
The people who are worst-off, apart from low-paid workers that is, are the people who've been led to believe they can retire on a pension at age 60. They are being taxed as if they were still at work. The age-related higher tax allowances don't kick in until age 65. To that extent, I can sympathise with them. I don't agree with the not saving and claiming benefits philosophy of life. Not at all![FONT=Times New Roman, serif]Æ[/FONT]r ic wisdom funde, [FONT=Times New Roman, serif]æ[/FONT]r wear[FONT=Times New Roman, serif]ð[/FONT] ic eald.
Before I found wisdom, I became old.0 -
margaretclare wrote: »I completely disagree with you.
I have been 'so stupid' because I could have saved a lot more!
The people who are worst-off, apart from low-paid workers that is, are the people who've been led to believe they can retire on a pension at age 60. They are being taxed as if they were still at work. The age-related higher tax allowances don't kick in until age 65. To that extent, I can sympathise with them. I don't agree with the not saving and claiming benefits philosophy of life. Not at all!
Like you. I and many others don't agree with the "not saving and claiming benefits philosophy" but pension credit is likely to change people's views. I saved all of my life and I have never claimed benefits. At age 60 I currently receive a pension of £200 per week on which I have to pay tax and council tax. If I had not bothered paying into a pension scheme I would receive £190or so tax-free pension credit, plus HB and CT exemption.
It does not seem fair. Mr KrissKross has a valid point.
terryw"If you can bear to hear the truth you've spoken
Twisted by knaves to make a trap for fools"
Extract from "If" by Rudyard Kipling0 -
I think a lot of people dont realise just how little the state pension alone and pension credits are. If you told a single person that doing nothing means that they will be earning around £6800 in retirement by doing nothing that would switch them on a bit more. Whether its still enough of a "scare" to do something about it now is a different matter.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0
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