Pension income is taking mum over her yearly personal allowance

NedS

MikeJXE said:

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 

Agreed, and I stated I used the full new state pension as the starting point for my example above, as that is what the majority of people may reasonably expect to receive moving forward. I accept there are people like yourself with SPs larger than the full new SP, but their numbers will dwindle over time.

Dazed_and_C0nfused

MikeJXE said:

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 

I suspect not.

You would be liable on one week at the old rate and 51 of the new rate.

Assuming you haven't applied for Marriage Allowance that does still come to more than the Personal Allowance but I suspect HMRC wouldn't normally issue a calculation (outside of Self Assessment) to collect tax on £12.

It does eat into your savings starter rate band though 😳