Should I pay tax when I'm on Pension Credit?

dhpeteb

My wife and I are both over pension age (70 and 68). I receive a small Teacher's Pension (£5998pa) and the State Pension (£8509pa). My wife has been refused the State Pension due to insufficient contributions (though there is still a dispute as to whether she should have been credited years when not working but receiving Child Benefit). The above amounts thus constitute our total income as a couple. As a a result, we qualify for Pension Credit and Housing Benefit. Nevertheless, HMRC deducts tax from my Teacher's Pension, apparently because my "personal income" exceeds the Personal Allowance of £12,570. Is this right considering the fact that we are assessed as a couple and, therefore, logically in my view should have a joint tax allowance of 2 x £12,570 = £25,140?

marcia_

Tax is based on individuals only in the U.K. There is no joint allowance. 

[Deleted User]

There is no such thing as a joint tax allowance. You are both taxed separately. 

[Deleted User]

You need to follow up your wife's lack of state pension. Did she never work? If she received child allowance whilst bringing up children there should be some NI credit years. Do you rent accommodation? How long did you teach for?

Have you missing NI years too as you would have been 65/66 post 2016 when the new state pension was introduced. You may also be able to fill in missing years or top up as the result of being contracted out whilst in the TPS. May be useful to sign up to your government gateway accounts to check your complete NI years and whether any voluntary NI payments could improve both your pensions.

DE_612183

your wife can transfer some of her tax free allowance to you - think it's only about £1200 but it will make a small difference

Dazed_and_C0nfused

dhpeteb said:

My wife and I are both over pension age (70 and 68). I receive a small Teacher's Pension (£5998pa) and the State Pension (£8509pa). My wife has been refused the State Pension due to insufficient contributions (though there is still a dispute as to whether she should have been credited years when not working but receiving Child Benefit). The above amounts thus constitute our total income as a couple. As a a result, we qualify for Pension Credit and Housing Benefit. Nevertheless, HMRC deducts tax from my Teacher's Pension, apparently because my "personal income" exceeds the Personal Allowance of £12,570. Is this right considering the fact that we are assessed as a couple and, therefore, logically in my view should have a joint tax allowance of 2 x £12,570 = £25,140?

As others have said you are taxed independently.

But your wife may wish to look at applying for Marriage Allowance.  This will have two consequences. 

Firstly your wife will have a reduced Personal Allowance (£11,310 instead of £12,570).

Secondly you will get £252 knocked off whatever your tax liability is.

She can backdate an application up to 4 years if you have been married long enough (and she is happy it won't financially disadvantage her).

molerat

dhpeteb said:

My wife and I are both over pension age (70 and 68). I receive a small Teacher's Pension (£5998pa) and the State Pension (£8509pa). My wife has been refused the State Pension due to insufficient contributions (though there is still a dispute as to whether she should have been credited years when not working but receiving Child Benefit). The above amounts thus constitute our total income as a couple. As a a result, we qualify for Pension Credit and Housing Benefit. Nevertheless, HMRC deducts tax from my Teacher's Pension, apparently because my "personal income" exceeds the Personal Allowance of £12,570. Is this right considering the fact that we are assessed as a couple and, therefore, logically in my view should have a joint tax allowance of 2 x £12,570 = £25,140?

Did she make the misguided decision to pay the married women's small stamp in her early married life ?

molerat

[Deleted User] said:

You need to follow up your wife's lack of state pension. Did she never work? If she received child allowance whilst bringing up children there should be some NI credit years. Do you rent accommodation? How long did you teach for?

Have you missing NI years too as you would have been 65/66 post 2016 when the new state pension was introduced. You may also be able to fill in missing years or top up as the result of being contracted out whilst in the TPS. May be useful to sign up to your government gateway accounts to check your complete NI years and whether any voluntary NI payments could improve both your pensions.

A thorough investigation in to the effects of increasing the state pension would be needed before making any decisions on that front, pension credit is a valuable door opener and an increased SP could end up with a lower effective income.

dhpeteb

Thanks all for your replies. I was aware of the general principle of taxation being invidual and also of the possibility of transferring tax allowance from one partner to the other. However, I just wondered whether there was some special and maybe little-known exception amongst the confusion and complexity of tax legislation. It just seems completely nonsensical that I should be paid Pension Credit at the same time as being taxed.

With regard to the other question, my wife did work for a number of years and we have checked her contributions record according to HMRC. As far as we can tell she has not been credited for years when not working but receiving Family Allowance/Child Benefit. The problem is that it is nigh-on impossible to get this across to HMRC because a) Computer says "No" and b) the relevant records at HMRC/NI appear to have been lost.

Marcon

dhpeteb said:

Thanks all for your replies. I was aware of the general principle of taxation being invidual and also of the possibility of transferring tax allowance from one partner to the other. However, I just wondered whether there was some special and maybe little-known exception amongst the confusion and complexity of tax legislation. It just seems completely nonsensical that I should be paid Pension Credit at the same time as being taxed.

I can understand why you feel that way, but pension credit (which is tax free) is based on the income of both partners, and tax is based on an individual's (potentially taxable) income, so it would be impossible to administer by trying to offset against your tax.

dhpeteb said:

With regard to the other question, my wife did work for a number of years and we have checked her contributions record according to HMRC. As far as we can tell she has not been credited for years when not working but receiving Family Allowance/Child Benefit. The problem is that it is nigh-on impossible to get this across to HMRC because a) Computer says "No" and b) the relevant records at HMRC/NI appear to have been lost.

Bit of a long shot, but try a Subject Access Request (post two in this lengthy thread): https://forums.moneysavingexpert.com/discussion/6267734/is-there-a-really-detailed-online-method-to-check-nics/p1

If this shows periods when your wife wasn't working/paying NI, it may strengthen your hand in respect of years when you believe she should have been credited with NI - but note molerat's warning about taking yourself out of qualifying for pension credit.

xylophone

Your income as an individual  before tax is  £14,507,  which is £1, 937 over your personal allowance.  You are liable for tax (20% of £1,937), approx £387 per annum.

Your SP is paid gross so that all the tax due is taken from your occupational pension - your tax code reflects this.


https://www.ageuk.org.uk/globalassets/age-uk/documents/factsheets/fs48_pension_cr.edit_fcs.pdf

Your individual income is also the only income you have as a couple.

You are assessed as a couple for PC.  The minimum income guarantee  for a couple is £306.85

Your after tax income is only  approx £271 a week, so presumably your receive around £35  a week in GPC.

In effect you get your tax back plus  around £28 a week on top?

On top of that , because you are on GPC, you pay a reduced rate of council tax?

And you receive housing benefit towards your rent.

Being in receipt of GPC gets you the maximum help towards health related costs.

It is possible that if your wife were entitled to a very modest state pension which took you over GPC level ,you would end up worse off overall?