State Pension - Taxed by the back door

IanBerry

Phoenix72 said:

IanBerry said:

I had a feeling this might spark some discussion but it is the statement that is banded around of 'State Pension is not taxable', that is a general misconception. I accept that if it is your only income and it is below the allowance threshold, then clearly this is correct but not when added to other pension income. It's the wording that is misleading, not the actual requirement to pay tax. State Pension becomes taxable as income when the income tax threshold is exceeded.

Who has banded that statement around? Who has this misconception? Only you from what I can see. It's taxable in the same way as if your only source of income was from employment of £10k or investments of £11k. You are confusing taxable and having a liabilty to tax.

Well Mel Stride for a start in a recent TV interview....     As I understand it, A + B + C - Personal Allowance = Income on which income tax is paid. (Consider C as State Pension). If A + B - Personal Allowance (and any transfer of married persons allowance) is les than £12570 then no tax is paid, but by adding C then A and B become taxable. Is that correct?

booneruk

IanBerry said:

I had a feeling this might spark some discussion but it is the statement that is banded around of 'State Pension is not taxable', that is a general misconception. I accept that if it is your only income and it is below the allowance threshold, then clearly this is correct but not when added to other pension income. It's the wording that is misleading, not the actual requirement to pay tax. State Pension becomes taxable as income when the income tax threshold is exceeded.

Correct me if this isn't so, but hasn't this always been the case? have pension income above the tax free amount and you're subject to some income tax.

Marcon

IanBerry said:

I had a feeling this might spark some discussion but it is the statement that is banded around of 'State Pension is not taxable', that is a general misconception. I accept that if it is your only income and it is below the allowance threshold, then clearly this is correct but not when added to other pension income. It's the wording that is misleading, not the actual requirement to pay tax. State Pension becomes taxable as income when the income tax threshold is exceeded.

You're not listening properly to what is actually being 'bandied around'. Those discussions have resulted from the freeze on the personal allowance, which has led to many people whose only income is the state pension - and there are many of them - being taxed for the first time, precisely because their state pension has, thanks to the triple lock, gone over the PA threshold. 

The posts above have all tried to help you understand the reality - and you haven't bothered to thank anyone.

p00hsticks

IanBerry said:

It's the wording that is misleading, not the actual requirement to pay tax. State Pension becomes taxable as income when the income tax threshold is exceeded.

No, that wording is misleading too. State Pension is taxable income. Full stop.
But you will only pay any tax if your income exceeds your tax allowance. 

flaneurs_lobster

OP understands perfectly the position on how income tax is calculated on state pension and any other income. They are trying to start an argument/conversation around the throw-away "pensions are not taxed" remark that some ill-briefed politicians have made. 

They have simply chosen the wrong forum for a row, most readers here are well aware how the taxation system works and they will not generate the outraged responses they seek.

p00hsticks

ader42 said:

The tax does not come off the state pension (except in any rare instamces where the state pension exceeds the personal allowance), it comes off the additional pensions. 

the State Pension (and other taxable benefits) never have tax deducted at source, regardless of the amount.

DWP have no knowledge of what an individuals tax allowance is - they simply pass on the amount of benefit entitlement (which is not necessarily the same as that actually paid, as is often raised on this board ) to HMRC who will then work out if any tax is due and how best to collect it. 

Phoenix72

IanBerry said:

Phoenix72 said:

IanBerry said:

I had a feeling this might spark some discussion but it is the statement that is banded around of 'State Pension is not taxable', that is a general misconception. I accept that if it is your only income and it is below the allowance threshold, then clearly this is correct but not when added to other pension income. It's the wording that is misleading, not the actual requirement to pay tax. State Pension becomes taxable as income when the income tax threshold is exceeded.

Who has banded that statement around? Who has this misconception? Only you from what I can see. It's taxable in the same way as if your only source of income was from employment of £10k or investments of £11k. You are confusing taxable and having a liabilty to tax.

Well Mel Stride for a start in a recent TV interview....     As I understand it, A + B + C - Personal Allowance = Income on which income tax is paid. (Consider C as State Pension). If A + B - Personal Allowance (and any transfer of married persons allowance) is les than £12570 then no tax is paid, but by adding C then A and B become taxable. Is that correct?

You are massively overcomplicating things.

You only pay tax on your taxable income if it exceeds your personal allowance.

If I have state pension of £8k and savings interest of £2k I may not have to pay any tax on it but I still have taxable income of £10k.

p00hsticks

IanBerry said:

Phoenix72 said:

IanBerry said:

I had a feeling this might spark some discussion but it is the statement that is banded around of 'State Pension is not taxable', that is a general misconception. I accept that if it is your only income and it is below the allowance threshold, then clearly this is correct but not when added to other pension income. It's the wording that is misleading, not the actual requirement to pay tax. State Pension becomes taxable as income when the income tax threshold is exceeded.

Who has banded that statement around? Who has this misconception? Only you from what I can see. It's taxable in the same way as if your only source of income was from employment of £10k or investments of £11k. You are confusing taxable and having a liabilty to tax.

Well Mel Stride for a start in a recent TV interview....     As I understand it, A + B + C - Personal Allowance = Income on which income tax is paid. (Consider C as State Pension). If A + B - Personal Allowance (and any transfer of married persons allowance) is les than £12570 then no tax is paid, but by adding C then A and B become taxable. Is that correct?

You are misunderstanding, misusing or misquoting the word 'taxable'. 

A, B and C are either classed as taxable income (state pension, earnings, dividends, non-ISA savings interest) or not (ISA savings interest or dividends etc). The personal allowance is completely irrelevant to that - the word taxable indicates that the income should be taken into account by HMRC when calculating a persons potential tax lability.

The persons individual tax allowance is determined by a completely separate calcualtion and will be affected by a persons earned income if over £100k, marriage allowance etc.   

If the total of all taxable income exceeds the individuals tax allowance then there will be some tax to pay.   

Ayr_Rage

@IanBerry your are in a fortunate position, the same as me.

When I get my state pension next year, 42% of it will go straight back to the Scottish Government.

IanBerry

Guys, thanks for your comments (far be for me not to say thank you), I was merely asking for some clarification to allow me to understand this subject, because since receiving my State Pension my income tax has gradually increased by now, 68% more than what I was paying before. I don't believe I have been overcomplicating things as suggested, because my understanding is that HMRC calculate the income on which tax is to be paid by deducting the state pension from the total allowance (personal + married persons where applicable). From the comments made I understand what is being said, so I can now draw a line under this.