Widowed Basic State Pension pushed into paying tax

FIREDreamer

solidpro said:

FIREDreamer said:

solidpro said:

Ok I'm never mentioning WASPE or WASPI again.

I was trying to remote work in the spare room and I overhear this conversation my wife is having with HMRC over the phone trying to ascertain whether either a letter or something with their branding on is real. This was the one and only letter we've seen regarding income tax to be paid. I didn't even realise she was getting more than the very base level of maximum state pension until now. It was during that phone call (on speakerphone) I overheard the guy from HMRC explaining that a not-insignificant portion of the bill was related to interest (circa £30-£40). Obviously I'm playing catch up here the whole time because I'm the only person in our house that seems to want to understand or manage personal finance. Another problem we have is that often a letter gets filed in a box which goes under another box in a cupboard protected by spider guards. And so when this one turns up, which is probably for last year, it probably isn't the 'first we've heard of it' but everything is a puzzle to be unpuzzled.

We will try and get her to point out, save and show us the fresh pension breakdown she is likely to get around springtime. We're paying the tax because the conversation about having to pay tax because you're getting more money is just one not worth having. Thanks for all the responses.

Could she have earned £1,200 taxable interest in that tax year? The first £1,000 is not taxed (it has a tax free allowance) but there is 20% tax on the rest and £200 x 20% implies £40 tax due?

Definitely not. She has less than £1000 to her name.

badmemory said:

Alright so your MIL is a couple of years older than me and on the basic state pension plus SERPS from her earnings & some inherited from her late husband.  I suspect that what she has there is a simple assessment letter.  Does it have the year 23-24 near the top & PA302 at the bottom?  Stating how much tax she needs to pay by 31 Jan 2025.  So not urgent at the moment.

Some will be items (as D&C said) that are taxable but currently at 0%, such as savings interest.

She/you should check the figures, especially the state pension figures as they seem to normally do 52 x the new rate rather than 51 x new rate plus 1 x old rate.

Yes, it is a simple assessment tax calculation for 2023-2024 and it does have PA302 at the bottom. It says on page 2 that state pension is £13746.20 and untaxed interest is £34. It says taxable income is £1210.20 (which is £1176 @ basic rate + interest) and so the income tax is £235.20

£13,746.20 - £12,570.00 (personal allowance) = £1,176.20 taxable.

20% of this is £235.20 income tax due

The £34 interest is not taxed.

xylophone

Yes, it is a simple assessment tax calculation for 2023-2024 and it does have PA302 at the bottom. It says on page 2 that state pension is £13,746.20 and untaxed interest is £34. It says taxable income is £1210.20 (which is £1176 @ basic rate + interest) and so the income tax is £235.20

She is not paying any tax on the interest.

https://www.gov.uk/apply-tax-free-interest-on-savings

In the tax year 2023/4 her state pension totalled £13,746.20.

This is in excess of her Personal Allowance (£12,570).

£13,746.20 - £12,570  =  £1,176.20.

20% of £1,176.20 = £235.20.

If her pension for 23/24 was £13,746.20 

£8,112.40 was Basic SP.

£5,633.80  was Additional SP.  This would comprise Graduated Pension, State Earnings Related Pension, State Second Pension.

This could be made up of amounts accrued in her own right and amounts inherited from her late spouse.

See Annex A (p20 onwards here).

https://assets.publishing.service.gov.uk/media/5a758e27e5274a6faebebd94/derived-inherited-entitlement.pdf

Her pension 24/25 will have increased. I'd estimate that she is currently receiving around £285.10 a week or £1140.40 every four weeks.

Of this, the Basic SP is £169.50 a week, the balance being Additional SP made up as indicated in my previous post.

If she is now on £14,825 per annum then she will owe tax on £2255.20.

She is looking at a bill of around £451.20.

To be sure of the situation check her state pension increase letter.

eskbanker

FIREDreamer said:

solidpro said:

badmemory said:

Alright so your MIL is a couple of years older than me and on the basic state pension plus SERPS from her earnings & some inherited from her late husband.  I suspect that what she has there is a simple assessment letter.  Does it have the year 23-24 near the top & PA302 at the bottom?  Stating how much tax she needs to pay by 31 Jan 2025.  So not urgent at the moment.

Some will be items (as D&C said) that are taxable but currently at 0%, such as savings interest.

She/you should check the figures, especially the state pension figures as they seem to normally do 52 x the new rate rather than 51 x new rate plus 1 x old rate.

Yes, it is a simple assessment tax calculation for 2023-2024 and it does have PA302 at the bottom. It says on page 2 that state pension is £13746.20 and untaxed interest is £34. It says taxable income is £1210.20 (which is £1176 @ basic rate + interest) and so the income tax is £235.20

£13,746.20 - £12,570.00 (personal allowance) = £1,176.20 taxable.

20% of this is £235.20 income tax due

The £34 interest is not taxed.

Technically it is taxed, but at 0%, so, as OP correctly says, the taxable income (above her allowance) is £1210, not £1176.