State Pension vs Income Tax Threshold

molerat

BoGoF said:

pinnks said:

First point to note is that your protected payment rises by CPI, not earnings, so (unfortunately for you) that element of your pension will increase by 6.7%, not 8.5%.  Cold comfort but that will mean your tax will be lower...

No, the triple lock meant it increased by average increase in earnings of 8.5%

Only the max new pension amount increases with the triple lock.  The protected payment, anything above £203.85, only increases with CPI.  The same with the old pension, only the basic pension increases with the triple lock.

p00hsticks

BoGoF said:

pinnks said:

First point to note is that your protected payment rises by CPI, not earnings, so (unfortunately for you) that element of your pension will increase by 6.7%, not 8.5%.  Cold comfort but that will mean your tax will be lower...

No, the triple lock meant it increased by average increase in earnings of 8.5%

The 'basic' new state pension increases by the triple lock, but the protected payment over and above that only increases by CPI. 

See The new State Pension: How it's calculated - GOV.UK (www.gov.uk) under 'Annual Increases'

What the OP seems not to have realised is that the income of many people over state pension age already exceeds the tax threshold, either because they also receive private pensions or  that they have large protected payments over and above the basic state pension amount, and so they are already liable to paying income tax. 

theoretica

Cricketthedog said:

resulting in me paying approx. £105 in tax...

Pensioners don’t have the luxury of increasing their income from changing employment.

Just because someone is of pension age doesn't make them incapable of earning anything at all.  I dare say many pensioners could make £105 a year if they wanted to - or more, tax free up to the £1000 small trading allowance. 

Hoenir

westv said:

Hoenir said:

MTB1986 said:

Cricketthedog said:

I don’t know if has come to the attention of the DWP or the Treasury, but the increase due to come into force in April for the State Pension, In some cases (ie pension +protected amount) , will  result in the yearly Pension becoming more than the income tax personal allowance. This means that I, for one, will be seeing an increase of £527 over the income tax threshold,  resulting in me paying approx. £105 in tax, so in reality my increase will be   a 6.8% increase not the 8.5% promised.

I understand that we all have to take a share of the tax burden, but I have done that all my life for 55 years, now when I need the income from my pension in these expensive times, it is being given by one hand and taken away with the other. Pensioners don’t have the luxury of increasing their income from changing employment.

Is there the possibility of the income tax threshold rising? Maybe that’s a question that many others will start asking soon when they realise that their hard earned pensions will be  eaten away by paying tax

I very much doubt that the government intend to maintain the personal allowance threshold if it begins to exceed the annual amount of the new state pension, so I think they will increase the personal allowance as and when that happens to enable those who solely receive that new SP income to avoid paying tax on it. That’s purely my conjecture though. 

Would seem a logical step for the personal allowance to be brought into line with the new state pension. If nothing else but for administrative reasons. Any other pension income then becoming taxable by default. 

I thought it wasn't going to change for another 5 (?) years.

With the rate of inflation falling and hopefully remaining suppressed. Still some head room. Before it becomes a topic of conversation. 

xylophone

people receiving the old "basic" State Pension could be getting best part of £20k in State Pension.

To nit pick, people receiving the old basic state pension plus  maximum Additional State Pension could be receiving the best part of £20,000 per annum.....

People in receipt of full NSP plus protected payment could be in a similar position.

xylophone

https://www.gbnews.com/money/state-pension-increase-rates-how-much-amount

As pointed out in the above, even a person in receipt of just full NSP would need only a tiny amount of eg personal pension provision, (under £110 a month) to be dragged into the tax net....

Billxx

The government is unlikely to raise the thresholds.  If there is any headroom in the next budget, I think they will go for a headline grabber like abolishing IHT, in a desperate attempt to gain votes.

hugheskevi

Hoenir said:

MTB1986 said:

Cricketthedog said:

I don’t know if has come to the attention of the DWP or the Treasury, but the increase due to come into force in April for the State Pension, In some cases (ie pension +protected amount) , will  result in the yearly Pension becoming more than the income tax personal allowance. This means that I, for one, will be seeing an increase of £527 over the income tax threshold,  resulting in me paying approx. £105 in tax, so in reality my increase will be   a 6.8% increase not the 8.5% promised.

I understand that we all have to take a share of the tax burden, but I have done that all my life for 55 years, now when I need the income from my pension in these expensive times, it is being given by one hand and taken away with the other. Pensioners don’t have the luxury of increasing their income from changing employment.

Is there the possibility of the income tax threshold rising? Maybe that’s a question that many others will start asking soon when they realise that their hard earned pensions will be  eaten away by paying tax

I very much doubt that the government intend to maintain the personal allowance threshold if it begins to exceed the annual amount of the new state pension, so I think they will increase the personal allowance as and when that happens to enable those who solely receive that new SP income to avoid paying tax on it. That’s purely my conjecture though. 

Would seem a logical step for the personal allowance to be brought into line with the new state pension. If nothing else but for administrative reasons. Any other pension income then becoming taxable by default. 

It would be an extremely expensive measure, given the generosity of the Triple Lock. The Triple Lock is also unsustainable in the extremely long run, so it would not be sensible to link other thresholds to an unsustainable uprating mechanism. The current Government has also shown a strong preference to freeze many thresholds (not just in income tax) in cash terms and only adjust them when it is politically beneficial to do so.

The Conservatives could not implement such a change, as it would require expenditure cuts and/or tax increases to meet their fiscal rule of the national debt falling as a % of GDP at the end of the forecast period. Although given the approach of simply amending Departmental expenditure to whatever it needs to be to meet that target, regardless of whether it is realistic or not, perhaps that isn't such a constraint as it may at first appear.

dealyboy

@Brie said:

There was a pop up online earlier about 3 taxes being cut or abolished including inheritance tax.  The line was that it was the Tory's first step to upping their ratings in the polls.  If they cut IHT (which of course only affects the well off) then they might balance it by raising the tax allowance to buy the votes of the less well off pensioners.   In the spring budget perhaps??

If not there are lots of people who will be caught out by a tax bill they don't have the savings to pay.  

The same three posited cuts were widely reported yesterday.

The Telegraph re. tax cuts in the Spring budget on 6th March "These include raising the 40p income tax threshold, cutting the basic 20p rate, and abolishing inheritance tax in its entirety, ...". (my bold)

... so the less well off pensioners will still be less well off if my maths is correct.

For England, Wales, Northern Ireland: Basic rate pensioners would be £20 better off per £1,000 over the allowance, pension credit pensioners would be no better off because they don't pay income tax, and those making personal pension contributions would receive tax relief of £234.57 rather than £250 per £1,000 contribution (presumably). Note: different rates apply in Scotland.

crumblie

I deferred my State pension for a few years. As a result it's over the tax threshold and been liable for tax for some time. As it's my only taxable income I receive an annual tax demand from HMRC which I pay to them directly.

From 2027, when those pensioners with no other income than state pension drift over the threshold and are not required to pay tax on it, I wonder if I will still be liable ?