Pension income is taking mum over her yearly personal allowance

molerat

When a fairly decent pension was mentioned I assumed that it was a work widows pension rather than inherited SP which explains the tax bill.

Dazed_and_C0nfused

waringd said:

She is on a state pension only (around £1,100 a month).  This seems "fairly decent" as before dad passed away she was only receiving £200 a month (as she stayed at home to raise her children).

She has received a tax bill every year (around October, payable by the end of January) since my dad passed away.  Interesting that you feel she shouldn't be receiving a tax bill.

Have you converted it into a monthly figure or assumed her regular payment is monthly?

State Pension I'd paid 4 weekly (or weekly) so £1,100 each time could be £14,300/year.

Linton

molerat said:

When a fairly decent pension was mentioned I assumed that it was a work widows pension rather than inherited SP which explains the tax bill.

Likewise.  So yes if it is all State Pension then there is separate tax to pay.

MallyGirl

This is going to happen to more and more people with the personal allowance being frozen at £12,570 until 2028 and the state pension rising.

At current full pension of £185.15*365/7 = £9,654.25 then any sort of modest pension income on top of that is going to generate a tax bill.

coyrls

MallyGirl said:

This is going to happen to more and more people with the personal allowance being frozen at £12,570 until 2028 and the state pension rising.

At current full pension of £185.15*365/7 = £9,654.25 then any sort of modest pension income on top of that is going to generate a tax bill.

As I understand it, the issue in this case is that the state pension alone is over the annual allowance but can't be taxed and so an annual tax bill is generated.  In your example the "modest pension income" could be taxed and so there will be no annual tax bill generated.

MikeJXE

coyrls said:

MallyGirl said:

This is going to happen to more and more people with the personal allowance being frozen at £12,570 until 2028 and the state pension rising.

At current full pension of £185.15*365/7 = £9,654.25 then any sort of modest pension income on top of that is going to generate a tax bill.

As I understand it, the issue in this case is that the state pension alone is over the annual allowance but can't be taxed and so an annual tax bill is generated.  In your example the "modest pension income" could be taxed and so there will be no annual tax bill generated.

There is going to be thousands of pensioners going over the personal allowance and generating a tax bill this year and further thousands for the next 5 years 

Extra staff needed at HMRC ? 

Gubs113

There will be a lot of pensioners that will suddenly get a tax bill for the 1st time over the next few years 

waringd

Thanks all for your help and advice - sounds like HMRC are correct then

NedS

MikeJXE said:

coyrls said:

MallyGirl said:

This is going to happen to more and more people with the personal allowance being frozen at £12,570 until 2028 and the state pension rising.

At current full pension of £185.15*365/7 = £9,654.25 then any sort of modest pension income on top of that is going to generate a tax bill.

As I understand it, the issue in this case is that the state pension alone is over the annual allowance but can't be taxed and so an annual tax bill is generated.  In your example the "modest pension income" could be taxed and so there will be no annual tax bill generated.

There is going to be thousands of pensioners going over the personal allowance and generating a tax bill this year and further thousands for the next 5 years 

Extra staff needed at HMRC ? 

Just done a quick calculation out of interest, and if we increment the current new state pension by 10.1% in April 2023, and then assume inflation of 5%, 3.5%, 3%, 2.5%, 2.5% for the next 5 years (April 2024 - April 2028), we would have a full SP of £12,884 in April 2028, just over the personal tax allowance.

If the government can get inflation down and under control, they may just be able to keep the SP at or under the personal tax free allowance. Even if inflation does substantially drop this year, pay rises generally lag inflation and the triple lock may mean higher increases in line with pay rises next year.

If the majority of people are paying tax on their SP, then presumably HMRC would need to look at revising the current system to make it more efficient.

MikeJXE

NedS said:

MikeJXE said:

coyrls said:

MallyGirl said:

This is going to happen to more and more people with the personal allowance being frozen at £12,570 until 2028 and the state pension rising.

At current full pension of £185.15*365/7 = £9,654.25 then any sort of modest pension income on top of that is going to generate a tax bill.

As I understand it, the issue in this case is that the state pension alone is over the annual allowance but can't be taxed and so an annual tax bill is generated.  In your example the "modest pension income" could be taxed and so there will be no annual tax bill generated.

There is going to be thousands of pensioners going over the personal allowance and generating a tax bill this year and further thousands for the next 5 years 

Extra staff needed at HMRC ? 

Just done a quick calculation out of interest, and if we increment the current new state pension by 10.1% in April 2023, and then assume inflation of 5%, 3.5%, 3%, 2.5%, 2.5% for the next 5 years (April 2024 - April 2028), we would have a full SP of £12,884 in April 2028, just over the personal tax allowance.

If the government can get inflation down and under control, they may just be able to keep the SP at or under the personal tax free allowance. Even if inflation does substantially drop this year, pay rises generally lag inflation and the triple lock may mean higher increases in line with pay rises next year.

If the majority of people are paying tax on their SP, then presumably HMRC would need to look at revising the current system to make it more efficient.

That depends on the amount of state pension you are starting with

My state pension is £220.15 per week £11,447.80

10.1 % increase makes mine £12,604 and over the threshold this April 

A tax bill to pay for the first time in 19 years