Tax and State Pension

gt568

Since my father died in late 2019 I've had to do my mothers self assessment forms.

She is in receipt of:

Full SP....

Small private pension circa 3k PA....

Small civil service pension circa 3k PA....

Late fathers occupational pension of circa 20k PA....

American SS payment of circa 10k (hence why she does SA since there is no tax paid on this)....

So my question is how do I determine if she needs to pay tax on the UK SP?  I always assumed it was paid gross and I've declared it as untaxed income on her return, but some recent reading online suggests it may be paid with the tax paid deducted by the occupational pension provider.  If so I have made her overpay for a few years?

Does that make sense?

Dazed_and_C0nfused

State Pension is always taxable and always paid gross without tax being deducted.

You declare what she was entitled to receive i.e. 1 week of the old (2020:21) rate and 51 weeks of the new 2021:22 rate.

Or simply accept the figure HMRC pre-populate the return with if it's close enough.

Brie

sorry to hijack but does mean that everyone in receipt of SP needs to submit a return?

molerat

Brie said:

sorry to hijack but does mean that everyone in receipt of SP needs to submit a return?

No.  The tax is usually dealt with through the PAYE system for the vast majority of those in receipt of SP.  In general SA is a niche requirement as in OP's case with an untaxed overseas income.

And to OP

So my question is how do I determine if she needs to pay tax on the UK SP?  I always assumed it was paid gross and I've declared it as untaxed income on her return, but some recent reading online suggests it may be paid with the tax paid deducted by the occupational pension provider.  If so I have made her overpay for a few years?

SP is taxable income as is just about every other type of income. You don't determine it and yes any tax may already be taken from her other pensions.  SA merely informs HMRC of all income from any source from which they can allocate suitable tax codes to any PAYE income to try and collect the correct amount of tax and square up any over or underpaid tax.  Putting the correct figures on a SA will not result in overpaid tax.

SiliconChip

Brie said:

sorry to hijack but does mean that everyone in receipt of SP needs to submit a return?

If it did HMRC would be overwhelmed by the returns submitted by 12.5 million state pensioners and they'd quickly find a way to ensure it didn't need to happen. As @molerat (and the OP) have explained there are specific circumstances in this case that require a return to be submitted.

In general HMRC will tell you if they think a return is needed, I had to do one for my mum for a couple of years after my dad died and she started to receive his occupational pension but once the tax codes settled down they said it could stop. I suspect that now it would be resolved more easily through personal tax accounts.

Brie

Thanks @molerat &  @SiliconChip

Yes on the one hand I wondered how many million OAPs might be in trouble for not submitting anything - certainly my inlaws never did but their pension situation was quite simple really.

I'm more concerned as I'm due to start receiving my foreign SP next month - and have no idea how much will be paid!!!  But presumably this will put me in the return box for the next couple of years due to foreign, UK pensions plus employment income.

Pennywise

Brie said:

sorry to hijack but does mean that everyone in receipt of SP needs to submit a return?

Only if their state pension is over the tax free personal allowance and they have no other occupational pensions through which the tax can be collected.

Tax can't be deducted from state pension (there's no mechanism for it), so an SA return is the default "answer" to where tax is due but can't be collected in another way (the "other way" usually being a PAYE tax code adjustment for an occupational pension subject to PAYE tax, but sometimes that can't work either, i.e. if the tax would be more than 50% of the occupational pension).

HMRC have been doing an alternative in some cases, being what they originally called "Simple Assessment" which was aimed to be a simple alternative to them requiring self assessment tax returns, but in my experience, it's not really been widely introduced - I've seen very few of them.

But, having said all that, in this case, it's almost certainly the foreign income that's causing the need for the self assessment tax return.

xylophone

Full SP....

What exactly do you mean by this?

Only a basic SP?

Only a full NSP?

Something else?

gt568

Dazed_and_C0nfused said:

State Pension is always taxable and always paid gross without tax being deducted.

I thought that, but this suggests otherwise hence my question as to whether her SP should be declared as untaxed income?

https://www.gov.uk/tax-on-pension/how-your-tax-is-paid

If you get the State Pension and a private pension

Your pension provider will take off any tax you owe before they pay you. They’ll also take off any tax you owe on your State Pension.

If you get payments from more than one provider (for example, from a workplace pension and a personal pension), HM Revenue and Customs (HMRC) will ask one of your providers to take the tax off your State Pension.

[Deleted User]

gt568 said:

Dazed_and_C0nfused said:

State Pension is always taxable and always paid gross without tax being deducted.

I thought that, but this suggests otherwise hence my question as to whether her SP should be declared as untaxed income?

https://www.gov.uk/tax-on-pension/how-your-tax-is-paid

If you get the State Pension and a private pension

Your pension provider will take off any tax you owe before they pay you. They’ll also take off any tax you owe on your State Pension.

If you get payments from more than one provider (for example, from a workplace pension and a personal pension), HM Revenue and Customs (HMRC) will ask one of your providers to take the tax off your State Pension.

The detail is important- ‘they’ll take off any tax you OWE on your state pension’ is not the same as taking tax off your state pension. There is no mechanism, and never has been, for deducting tax from the state pension at source.

gt568

right so my question was perhaps poorly worded, how do I know if the pension provider has taken the tax as PAYE (I guess) or if i need to declare it as untaxed income?

I've always declared it as untaxed income previously which boosts the amount she has paid to HMRC but the link suggests it should have already been factored into the tax paid with her pension.