STATE PENSION AND INCOME TAX

Marcon

NOWOLD said:

Does anyone know if state only pensioners will be informed of this situation before it occurs?

Unlikely, because HMRC won't necessarily know of any other potentially taxable income - but it should be easy enough to work out for yourself, surely? You get a letter each year letting you know what your state pension will increase to and you know the personal allowance, so just compare the two if that's all the income you have.

arthur_fowler

Marcon said:

NOWOLD said:

Does anyone know if state only pensioners will be informed of this situation before it occurs?

Unlikely, because HMRC won't necessarily know of any other potentially taxable income - but it should be easy enough to work out for yourself, surely? You get a letter each year letting you know what your state pension will increase to and you know the personal allowance, so just compare the two if that's all the income you have.

This is where I get confused. I will retire next month (not SPA) and will have two incomes from pensions (one annuity and one DB). From what I have read, HMRC will issue tax codes to both providers that should deduct the correct tax at source. If this is the case why is it not also the case if one of multiple income streams is SP?

Sarahspangles

NOWOLD said:

Does anyone know if state only pensioners will be informed of this situation before it occurs?

The latest they will find out is when they get their PA302, which will be sent out around the same time as P800s are i.e. in the summer after the start of the next tax year. They then have several months before the underpaid tax is due. This puts them in a better position than someone whose tax has been collected in-year through PAYE - like their twin brother who opted out of SERPS/S2P and paid into a personal pension - and is closer to arrangements for those on Self Assessment.

eskbanker

arthur_fowler said:

Marcon said:

NOWOLD said:

Does anyone know if state only pensioners will be informed of this situation before it occurs?

Unlikely, because HMRC won't necessarily know of any other potentially taxable income - but it should be easy enough to work out for yourself, surely? You get a letter each year letting you know what your state pension will increase to and you know the personal allowance, so just compare the two if that's all the income you have.

This is where I get confused. I will retire next month (not SPA) and will have two incomes from pensions (one annuity and one DB). From what I have read, HMRC will issue tax codes to both providers that should deduct the correct tax at source. If this is the case why is it not also the case if one of multiple income streams is SP?

There is no facility for state pension to have tax deducted at source by DWP, unlike all commercial pension providers, but for those receiving both SP and a private pension, the latter will have a tax code assigned.

Marcon

arthur_fowler said:

Marcon said:

NOWOLD said:

Does anyone know if state only pensioners will be informed of this situation before it occurs?

Unlikely, because HMRC won't necessarily know of any other potentially taxable income - but it should be easy enough to work out for yourself, surely? You get a letter each year letting you know what your state pension will increase to and you know the personal allowance, so just compare the two if that's all the income you have.

This is where I get confused. I will retire next month (not SPA) and will have two incomes from pensions (one annuity and one DB). From what I have read, HMRC will issue tax codes to both providers that should deduct the correct tax at source. If this is the case why is it not also the case if one of multiple income streams is SP?

'The system' simply wouldn't be able to cope if HMRC had to act as a payroll department for every state pensioner in the land, which is why the situation is as described:

eskbanker said:

There is no facility for state pension to have tax deducted at source by DWP, unlike all commercial pension providers, but for those receiving both SP and a private pension, the latter will have a tax code assigned.

Fink_Nottle

HMRC must have an idea of how many people will be brought into self-assessment by this situation, and should (one would hope) be costing the impact. I've no idea of the numbers, but let's say it's 100,000 people. That's 100,000 letters to send, x phone calls to answer (or not), y first time digital portal users to educate (many of whom will not be that tech savvy) and z fines to issue for people who couldn't get their heads round it and didn't engage/pay.

One would also hope they'd be costing alternatives to this entirely foreseeable mess. (Payroll style PAYE doesn't seem impossible, change the thresholds for all, change it for OAPs only etc) to see if any of them would be cheaper and less politically awkward.

But then I also hope that the Euromillions ticket I've just bought will land me £120m. Not sure which is more likely.

eskbanker

Fink_Nottle said:

HMRC must have an idea of how many people will be brought into self-assessment by this situation...

There's unlikely to be anyone brought into self-assessment by this?  HMRC will continue to use the simple assessment process explained earlier....

Fink_Nottle

eskbanker said:

There's unlikely to be anyone brought into self-assessment by this?  HMRC will continue to use the simple assessment process explained earlier....

Yes, thank you - I missed that. Or perhaps I just couldn't believe that I'd read that HMRC were claiming that something they were doing was simple...

And it still needs costing for all the extra people it will catch.

eskbanker

Fink_Nottle said:

eskbanker said:

There's unlikely to be anyone brought into self-assessment by this?  HMRC will continue to use the simple assessment process explained earlier....

Yes, thank you - I missed that. Or perhaps I just couldn't believe that I'd read that HMRC were claiming that something they were doing was simple...

And it still needs costing for all the extra people it will catch.

Sure, but none of this is news to HMRC, even though it keeps occurring to those such as OP who are only cottoning on belatedly - it's several years ago that the tax threshold was frozen to 2028 and it would have been known not long after that (given high inflation) that the full new state pension would go over this figure during that period, so there's no reason to believe that calculating and collecting the resultant tax will be some unanticipated additional cost....

Sarahspangles

eskbanker said:

Fink_Nottle said:

eskbanker said:

There's unlikely to be anyone brought into self-assessment by this?  HMRC will continue to use the simple assessment process explained earlier....

Yes, thank you - I missed that. Or perhaps I just couldn't believe that I'd read that HMRC were claiming that something they were doing was simple...

And it still needs costing for all the extra people it will catch.

Sure, but none of this is news to HMRC, even though it keeps occurring to those such as OP who are only cottoning on belatedly - it's several years ago that the tax threshold was frozen to 2028 and it would have been known not long after that (given high inflation) that the full new state pension would go over this figure during that period, so there's no reason to believe that calculating and collecting the resultant tax will be some unanticipated additional cost....

Wait until the rollout of Making Tax Digital starts. There are people with £50k of income from self employment and/or property lettings, currently out there enjoying the Spring flowers, little knowing that when they submit their Self Assessment for 2024/25 they will be moved onto MTD from April 2026. They have to provide their own business software and submit quarterly returns. Teddies will be flung!

https://www.litrg.org.uk/tax-nic/how-tax-collected/making-tax-digital-income-tax