State Pension - Taxed by the back door

Silvertabby

kimwp said:

Silvertabby said:

2childmum2 said:

I wonder whether the op thinks that once your income tips over your personal allowance then you are taxed at 20%  on all your income, rather than just the amount over your personal allowance? I say this because they have said they lose 20% of their state pension
I could be wrong but I've come across a number of people who think this.

I suspect OP is like me - our Armed Forces and other pensions are over the £12,570 personal tax allowance, so the tax due from our State pensions is 20% of the full amount.  But 80% of something is still better than 100% of nothing!

Ah! @Silvertabby did you get paid the other pensions before you started getting state pension? So then when you started getting the state pension, your income went up by 80% of the state pension? 

Yes.  RAF pension from my forties, and LGPS from when I retired at 60.

When my State pension kicked in, my tax code (against my RAF pension) was reduced in order to account for the 20% tax due.  My LGPS pension is taxed at BR.  

penners324

It's all income and thus taxed as it is.

Some people earn less than you so pay little to no tax.

kimwp

Silvertabby said:

kimwp said:

Silvertabby said:

2childmum2 said:

I wonder whether the op thinks that once your income tips over your personal allowance then you are taxed at 20%  on all your income, rather than just the amount over your personal allowance? I say this because they have said they lose 20% of their state pension
I could be wrong but I've come across a number of people who think this.

I suspect OP is like me - our Armed Forces and other pensions are over the £12,570 personal tax allowance, so the tax due from our State pensions is 20% of the full amount.  But 80% of something is still better than 100% of nothing!

Ah! @Silvertabby did you get paid the other pensions before you started getting state pension? So then when you started getting the state pension, your income went up by 80% of the state pension? 

Yes.  RAF pension from my forties, and LGPS from when I retired at 60.

When my State pension kicked in, my tax code (against my RAF pension) was reduced in order to account for the 20% tax due.  My LGPS pension is taxed at BR.  

Ok, I can see why OP feels their state pension is being taxed. It's just a matter of understanding what is taxable income and the tax thresholds for taxable income - if someone has additional taxable income that takes them over the tax threshold, that additional income gets taxed, regardless of age/pensioner status. Thank you for sharing your experience, it's helped me understand why the OP has their perspective.

pinnks

It really is rather simple.  Add all of your taxable (non-savings) income together, deduct your personal allowance and tax is 20% of the balance and that's your tax.  The rest is yours!

There are broadly 3 ways you can pay that tax:

1. through PAYE if you have a pension or earnings that is/are subject to PAYE
2. through Self Assessment by submitting a tax return every year and paying the ensuing tax
3. through Simple Assessing where HMRC assesses your tax and sends you a bill

If you have savings income over £1,000 it can get a tad more complicated but the principle is the same

kempiejon

IanBerry said:

....My issue therefore is that persons whose only income is the State Pension under the £12570 allowance are not taxed on their State Pension, however those who have other pension incomes are. I have no issue paying my fair share of the tax but I have never been able to get this clear in my head and feel in some way penalised and would welcome some thoughts.

Well you've cracked it now I think. To recap your total income is taxed not your state pension. The state pensions has always been taxable earnings.

kimwp

pinnks said:

It really is rather simple.  Add all of your taxable (non-savings) income together, deduct your personal allowance and tax is 20% of the balance and that's your tax.  The rest is yours!

There are broadly 3 ways you can pay that tax:

1. through PAYE if you have a pension or earnings that is/are subject to PAYE
2. through Self Assessment by submitting a tax return every year and paying the ensuing tax
3. through Simple Assessing where HMRC assesses your tax and sends you a bill

If you have savings income over £1,000 it can get a tad more complicated but the principle is the same

I'd say if savings income is over £500 it's more complicated (savings interest can push you over the 40% threshold and then your PSA is £500). And if you earn over the 40% threshold, then obviously paying a higher rate of tax on anything over the threshold, there are implications for child benefit etc at certain levels. Even higher tax thresholds have implications for personal allowance, share dividends are treated differently from earned income and savings etc etc. so not that simple really.

maxmycardagain

IanBerry said:

I am aged 69 and as such receive a State Pension. I worked full time from 1971 to 2016 and paid contributions as required. From 1973 (when I became 18) to Apr 1995 via my Army pay and May 1995 to 2016 via civilian industry salary. As such I receive a military pension and a former company pension, which when added to my State Pension clearly exceeds the £12570 threshold (plus the transfer of part of my non working wife's allowance). State Pension is considered INCOME for taxation purposes, so my income is based on my State Pension plus Military and Company Pension and hence tax is deducted based on the TOTAL INCOME less the statutory allowance. My issue therefore is that persons whose only income is the State Pension under the £12570 allowance are not taxed on their State Pension, however those who have other pension incomes are. I have no issue paying my fair share of the tax but I have never been able to get this clear in my head and feel in some way penalised and would welcome some thoughts.

makes you proud to be British doesnt it

FIREDreamer

IanBerry said:

I am aged 69 and as such receive a State Pension. I worked full time from 1971 to 2016 and paid contributions as required. From 1973 (when I became 18) to Apr 1995 via my Army pay and May 1995 to 2016 via civilian industry salary. As such I receive a military pension and a former company pension, which when added to my State Pension clearly exceeds the £12570 threshold (plus the transfer of part of my non working wife's allowance). State Pension is considered INCOME for taxation purposes, so my income is based on my State Pension plus Military and Company Pension and hence tax is deducted based on the TOTAL INCOME less the statutory allowance. My issue therefore is that persons whose only income is the State Pension under the £12570 allowance are not taxed on their State Pension, however those who have other pension incomes are. I have no issue paying my fair share of the tax but I have never been able to get this clear in my head and feel in some way penalised and would welcome some thoughts.

Not sure what the complaint is. 

State pension is taxable like every other pension.

There is a tax free allowance, a 20% band, 40% band and a 45% band.

Total all pensions and divide into the categories, starting from the left.

flaneurs_lobster

maxmycardagain said:

IanBerry said:

I am aged 69 and as such receive a State Pension. I worked full time from 1971 to 2016 and paid contributions as required. From 1973 (when I became 18) to Apr 1995 via my Army pay and May 1995 to 2016 via civilian industry salary. As such I receive a military pension and a former company pension, which when added to my State Pension clearly exceeds the £12570 threshold (plus the transfer of part of my non working wife's allowance). State Pension is considered INCOME for taxation purposes, so my income is based on my State Pension plus Military and Company Pension and hence tax is deducted based on the TOTAL INCOME less the statutory allowance. My issue therefore is that persons whose only income is the State Pension under the £12570 allowance are not taxed on their State Pension, however those who have other pension incomes are. I have no issue paying my fair share of the tax but I have never been able to get this clear in my head and feel in some way penalised and would welcome some thoughts.

makes you proud to be British doesnt it

I'm sure you are trying to be ironic but it's difficult when it's not clear what you are trying to be ironic about.

What makes you proud? 

flaneurs_lobster

FIREDreamer said:

IanBerry said:

I am aged 69 and as such receive a State Pension. I worked full time from 1971 to 2016 and paid contributions as required. From 1973 (when I became 18) to Apr 1995 via my Army pay and May 1995 to 2016 via civilian industry salary. As such I receive a military pension and a former company pension, which when added to my State Pension clearly exceeds the £12570 threshold (plus the transfer of part of my non working wife's allowance). State Pension is considered INCOME for taxation purposes, so my income is based on my State Pension plus Military and Company Pension and hence tax is deducted based on the TOTAL INCOME less the statutory allowance. My issue therefore is that persons whose only income is the State Pension under the £12570 allowance are not taxed on their State Pension, however those who have other pension incomes are. I have no issue paying my fair share of the tax but I have never been able to get this clear in my head and feel in some way penalised and would welcome some thoughts.

Not sure what the complaint is. 

State pension is taxable like every other pension.

There is a tax free allowance, a 20% band, 40% band and a 45% band.

Total all pensions and divide into the categories, starting from the left.

Please read the whole thread, or at least the first half dozen replies.