State Pension and Personal allowance

Cricketthedog

I saw this coming, and no government is going to change it....I am lucky to have an enhanced state pension, so have been paying tax on the "excess" over the personal allowance since this year... next April I will receive an increase but not the 4.1% promised take 20% off that, equals 3.28%. what amazes me, is that there must be so many more in the same boat, if not now, millions more in the few years will be affected and unlike train drivers we can't go on strike!

BlackKnightMonty

The personal allowance is already far far too generous. However placing state pensioners in circumstances where trivial amounts of tax need paying via self assessment is a nonsense. We need to make the state pension tax free; anything else on top, you then pay tax on.

hugheskevi

Inflation is currently 1.7%, so a 3.28% increase net of tax is a very nice real-terms income increase. Although as not all of your State Pension will go up by 4.1% your increase will be a bit lower than 3.28%.

Whereas someone with a full new State Pension and a £40,000 public service pension would get a net of tax increase across both their State and public service pension of 1.34%, and so have a real terms income cut.

It is just fiscal drag, been around a long time already, has cross-party support, and shows little sign of changing anytime soon. You are far from being the worst affected.

Dazed_and_C0nfused

BlackKnightMonty said:

The personal allowance is already far far too generous. However placing state pensioners in circumstances where trivial amounts of tax need paying via self assessment is a nonsense. We need to make the state pension tax free; anything else on top, you then pay tax on.

There is no need for Self Assessment in this situation.

HMRC have a separate process for dealing with this called Simple Assessment.  HMRC are responsible for issuing a Simple Assesment calculation (PA302) with the tax usually needing to be paid by 31 January after the end of the tax year.

molerat

Several publications are saying that HMRC will not issue a SA for under £50.  Would be interesting to hear from anyone if this is in fact the case.

Dazed_and_C0nfused

molerat said:

Several publications are saying that HMRC will not issue a SA for under £50.  Would be interesting to hear from anyone if this is in fact the case.

Although not Simple Assessment specific the example at the end of this guidance suggests there is a tolerance of at least £22.01.

I know someone posted on the Cutting Tax board about a refund tolerance and they claimed to have been told that was £10.

hugheskevi

BlackKnightMonty said:

The personal allowance is already far far too generous. However placing state pensioners in circumstances where trivial amounts of tax need paying via self assessment is a nonsense. We need to make the state pension tax free; anything else on top, you then pay tax on.

Worth noting that as of May 2023 the population in receipt of State Pension consisted of:

• 73% receiving the old State Pension
• 27% receiving the new State Pension, of which 12 percentage points received less than the full rate of new State Pension, and 1 percentage point received enough from State Pension alone to already be a basic rate taxpayer.
• That leaves just 14% of the entire population in receipt of a State Pension who are in receipt of new State Pension, and may be in receipt of the full amount of that benefit (DWP uses banded payment ranges, so cannot know for sure that all of this group receive full rate)
• Of that 14%, many will have other income. The Pensioner Incomer Series shows 80% of pensioner couples and 60% of single pensioners have private pension income. So maybe only around a third of that 14% are reliant on new State Pension only.

So that is something like 5% of the entire population of State Pensioners who fit into the category of their only income being the full-rate of new State Pension. 

Given the small size of the population, it would be difficult to justify changes to the whole pension and/or tax system to cater for such small numbers. It may even be considered helpful that the numbers are so small at the moment, as the group will grow in size over time so if they are pushed into income tax now, subsequent cohorts will be deeper into income tax and the process will be normalised. 

JoeCrystal

BlackKnightMonty said:

The personal allowance is already far far too generous. However placing state pensioners in circumstances where trivial amounts of tax need paying via self assessment is a nonsense. We need to make the state pension tax free; anything else on top, you then pay tax on.

I wouldn't worry about that, BlackKnightMonty. Due to frozen personal allowance and inflation, we are quickly heading back to the level anyway, especially since there is a possibility that the frozen personal allowance would extend beyond 2028 anyway. For example, in today's terms, our allowance is worth (CPI) the same as it was ten years ago (13-14). It is just that state pensions are increasing faster than personal allowance. If our allowance were based on 19-20 (as this is the most generous personal allowance comparatively) and index-linked via CPI, we would be at £15,500 by now.

squirrelpie

hugheskevi said:

subsequent cohorts will be deeper into income tax and the process will be normalised. 

I agree, though it fails the "least amount of hissing" test if a large number of pensioners have to actually make a tax payment every year rather than having it automatically collected in advance.

DairyQueen

squirrelpie said:

hugheskevi said:

subsequent cohorts will be deeper into income tax and the process will be normalised. 

I agree, though it fails the "least amount of hissing" test if a large number of pensioners have to actually make a tax payment every year rather than having it automatically collected in advance.

OH and I are 'hissing' so loudly that we are considering moving overseas. Most of us over-65s are well are aware when we are being scammed.

BikingBud

DairyQueen said:

squirrelpie said:

hugheskevi said:

subsequent cohorts will be deeper into income tax and the process will be normalised. 

I agree, though it fails the "least amount of hissing" test if a large number of pensioners have to actually make a tax payment every year rather than having it automatically collected in advance.

OH and I are 'hissing' so loudly that we are considering moving overseas. Most of us over-65s are well are aware when we are being scammed.

Scammed, please explain?

I trust that when you move overseas you will be happy that your pension is frozen and not want your pension to increase by CPI?