New State Pension Tax

Currently, my wife whose only income is her New State Pension (NSP) of £10,800.00 is a non-tax payer.  From the standard amount of taxable income, known as the Personal Allowance (PA) of 12570, she’s transferred me 10%, 1260 of it, so I can claim the Marriage Allowance (MA).  This reduces her PA to 11310.

With the potential 8.5% increase in the 2024-2025 NSP, to around £11,500.00, she’ll now be liable to pay Income Tax on £190.00 of her NSP, namely £38.00.  Will the tax due on her NSP of around £2.92 for each of her NSP payment dates, be taken from source or can she now expect to receive a tax demand from HMRC?

In addition, as she’ll now become a tax payer, is she still eligible for the additional £5,000.00 Savings Rate for low earners?  Note, as a non-tax payer, she hasn’t a Tax Code Notice from HMRC for decades.


Comments

  • The DWP have no way of deducting tax at source, so the only way for HMRC recover the tax underpayment is via a tax demand.
  • p00hsticks
    p00hsticks Posts: 12,587
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    Will the tax due on her NSP of around £2.92 for each of her NSP payment dates, be taken from source or can she now expect to receive a tax demand from HMRC?


    There is no facility to deduct tax from the state pension at source. My understanding i that she'll get a letter from HMRC towards the end of the tax year saying how much she owes and telling her how to go about paying it.
  • Dazed_and_C0nfused
    Dazed_and_C0nfused Posts: 12,797
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    edited 22 December 2023 at 10:42AM

    Currently, my wife whose only income is her New State Pension (NSP) of £10,800.00 is a non-tax payer.  From the standard amount of taxable income, known as the Personal Allowance (PA) of 12570, she’s transferred me 10%, 1260 of it, so I can claim the Marriage Allowance (MA).  This reduces her PA to 11310.

    With the potential 8.5% increase in the 2024-2025 NSP, to around £11,500.00, she’ll now be liable to pay Income Tax on £190.00 of her NSP, namely £38.00.  Will the tax due on her NSP of around £2.92 for each of her NSP payment dates, be taken from source or can she now expect to receive a tax demand from HMRC?

    In addition, as she’ll now become a tax payer, is she still eligible for the additional £5,000.00 Savings Rate for low earners?  Note, as a non-tax payer, she hasn’t a Tax Code Notice from HMRC for decades.


    Your figures don't make sense but if we assume £11,500 is reasonably accurate then she would have a liability of £38 on her State Pension.

    DWP do not deduct tax from normal State Pension payments so any bill would come from HMRC.

    She would still be able to utilise £4,810 of the savings starter rate band.  And if she used all of that would then be able to use the savings nil rate band where upto £1,000 interest is also taxed at 0%.

    If her only liability is £38 she may not be asked to pay it given how small it is.

    https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye93075

    But from the 2025-26 tax year I'm sure she can expect to get a bill (tax usually payable by 31 January after the end of the tax year, so 31 January 2027 for 2025-26).

    Has she considered doing the turn £2,880 into £3,600 pension trick?
  • Not aware of the pension trick.  Can you explain please.  Thanks.
  • p00hsticks
    p00hsticks Posts: 12,587
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    Not aware of the pension trick.  Can you explain please.  Thanks.
    A non-earner under the age of 75 can open a SIPP, pay in (up to) £2880 a year, get 20% tax relief added to make it up to £3600 and then withdraw the cash at the end of the year. 

    The topic comes up quite a bit over on the Pensions bard of the forum. 
  • Steve_666_
    Steve_666_ Posts: 226
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    edited 22 December 2023 at 3:27PM
    Not aware of the pension trick.  Can you explain please.  Thanks.
    A non-earner under the age of 75 can open a SIPP, pay in (up to) £2880 a year, get 20% tax relief added to make it up to £3600 and then withdraw the cash at the end of the year. 

    The topic comes up quite a bit over on the Pensions bard of the forum
    Who is this "Pensions bard" of whom you speak?
    The tunes are nice, but the lyrics are boring, if informative
  • Not aware of the pension trick.  Can you explain please.  Thanks.
    A non-earner under the age of 75 can open a SIPP, pay in (up to) £2880 a year, get 20% tax relief added to make it up to £3600 and then withdraw the cash at the end of the year. 

    The topic comes up quite a bit over on the Pensions bard of the forum. 
    And the current tax year is the one she can benefit most from this as she has some Personal Allowance going spare.

    From 2024-25 onwards the outlay will remain £2,880 but the return will only be £3,060 (if withdrawn in the same tax year).  Still easy money and a quick 6.25% return but not as lucrative as it would be in the current tax year.
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