What is the definition of income when assessing tax on pension

Grumpy_chap

It now seems to be that "people whose only income comes from the state pension will not have to pay tax"
https://www.bbc.co.uk/news/articles/cev8ed9klz1o

maman

Grumpy_chap said:

It now seems to be that "people whose only income comes from the state pension will not have to pay tax"
https://www.bbc.co.uk/news/articles/cev8ed9klz1o

But  that doesn't kick in until 2027. In the meantime it will be business as usual and income above the threshold will continue to be taxed. 

flaneurs_lobster

SouthCoastBoy said:

Just seems easier to tax everybody by the same rules. Say you have a pension paying a small amount per annum, you may be better off not taking it?

How so? Isn't 80% of something better than !!!!!! all?

maman

flaneurs_lobster said:

SouthCoastBoy said:

Just seems easier to tax everybody by the same rules. Say you have a pension paying a small amount per annum, you may be better off not taking it?

How so? Isn't 80% of something better than !!!!!! all?

Absolutely agree, you've got to earn it to pay it! 👍

zagfles

flaneurs_lobster said:

SouthCoastBoy said:

Just seems easier to tax everybody by the same rules. Say you have a pension paying a small amount per annum, you may be better off not taking it?

How so? Isn't 80% of something better than !!!!!! all?

Depends how this latest hairbrained announcement is implemented. If it's simply they won't bother collecting tax on people whose only income is the SP but they will if you have other income as implied, then say the SP exceeds the PA by £1000. If that's it - no tax. But if they have a private pension paying £500 a year, then total taxable income after PA is £1500, so £300 tax due, ie 60% tax on the £500 (collected via a K code on the private pension). 

I'm betting on a pensioner's tax allowance in the next budget. That would be the easy way, although doesn't cater for people getting more than the NSP due to SERPS/S2P. 

SouthCoastBoy

By 2029 say sp is 13570 a year, so tax of 20%of 1000, £200. Receive a private pension of £100 per annum, so liable for the £200, therefore out of pocket

Dazed_and_C0nfused

zagfles said:

flaneurs_lobster said:

SouthCoastBoy said:

Just seems easier to tax everybody by the same rules. Say you have a pension paying a small amount per annum, you may be better off not taking it?

How so? Isn't 80% of something better than !!!!!! all?

Depends how this latest hairbrained announcement is implemented. If it's simply they won't bother collecting tax on people whose only income is the SP but they will if you have other income as implied, then say the SP exceeds the PA by £1000. If that's it - no tax. But if they have a private pension paying £500 a year, then total taxable income after PA is £1500, so £300 tax due, ie 60% tax on the £500 (collected via a K code on the private pension). 

I'm betting on a pensioner's tax allowance in the next budget. That would be the easy way, although doesn't cater for people getting more than the NSP due to SERPS/S2P. 

Except without a change to legislation that cannot happen.

The pension company would deduct £250 (the maximum currently allowed) and HMRC would issue a Simple Assessment to collect the remaining £350.  

One small MSE type advantage of this is that over half of the tax doesn't have to be paid until 9 months after the end of the tax year, rather than it all being paid during the tax year.

NorthYorkie

NoMore said:

NorthYorkie said:

SouthCoastBoy said:

State pensioners with no other income will not have to pay income tax once over the tax threshold. Forget the detail whether just new state pension etc. Is it clear what the definition of income is? Is it taxable income or does it include money from savings, lump sum tax free cash etc. Any ideas?

Why do you say that "State pensioners with no other income will not have to pay income tax once over the tax threshold."? If their state pension exceeds the personal allowance of £12,570 then they will have to pay income tax.

If by "money from savings" you mean the interest credited on savings account, then yes, it is income (unless from an ISA). Also with regard to "lump sum tax free cash", there is a clue in the title.

You don't seem up to date with what the chancellor recently announced. 

State pensions will NOT be taxed under Labour, Rachel Reeves reveals to Martin Lewis

Agreed! I was not aware of this interview when I originally responded, However I would make a few points;

1. You should never take seriously anything that journalists and politicians say about tax.
2. This seems to be a case of Reeves making a commitment on the hoof. If it had always been intended to be introduced she would have mentioned it in her Budget speech. After all, this would be something she for which she would want the maximum credit and publicity
3. There is plenty of time for yet another U-turn

zagfles

Dazed_and_C0nfused said:

zagfles said:

flaneurs_lobster said:

SouthCoastBoy said:

Just seems easier to tax everybody by the same rules. Say you have a pension paying a small amount per annum, you may be better off not taking it?

How so? Isn't 80% of something better than !!!!!! all?

Depends how this latest hairbrained announcement is implemented. If it's simply they won't bother collecting tax on people whose only income is the SP but they will if you have other income as implied, then say the SP exceeds the PA by £1000. If that's it - no tax. But if they have a private pension paying £500 a year, then total taxable income after PA is £1500, so £300 tax due, ie 60% tax on the £500 (collected via a K code on the private pension). 

I'm betting on a pensioner's tax allowance in the next budget. That would be the easy way, although doesn't cater for people getting more than the NSP due to SERPS/S2P. 

Except without a change to legislation that cannot happen.

The pension company would deduct £250 (the maximum currently allowed) and HMRC would issue a Simple Assessment to collect the remaining £350.  

One small MSE type advantage of this is that over half of the tax doesn't have to be paid until 9 months after the end of the tax year, rather than it all being paid during the tax year.

Don't understand your numbers. The total tax due would be £300 so why would £600 be collected? 

Dazed_and_C0nfused

zagfles said:

Dazed_and_C0nfused said:

zagfles said:

flaneurs_lobster said:

SouthCoastBoy said:

Just seems easier to tax everybody by the same rules. Say you have a pension paying a small amount per annum, you may be better off not taking it?

How so? Isn't 80% of something better than !!!!!! all?

Depends how this latest hairbrained announcement is implemented. If it's simply they won't bother collecting tax on people whose only income is the SP but they will if you have other income as implied, then say the SP exceeds the PA by £1000. If that's it - no tax. But if they have a private pension paying £500 a year, then total taxable income after PA is £1500, so £300 tax due, ie 60% tax on the £500 (collected via a K code on the private pension). 

I'm betting on a pensioner's tax allowance in the next budget. That would be the easy way, although doesn't cater for people getting more than the NSP due to SERPS/S2P. 

Except without a change to legislation that cannot happen.

The pension company would deduct £250 (the maximum currently allowed) and HMRC would issue a Simple Assessment to collect the remaining £350.  

One small MSE type advantage of this is that over half of the tax doesn't have to be paid until 9 months after the end of the tax year, rather than it all being paid during the tax year.

Don't understand your numbers. The total tax due would be £300 so why would £600 be collected? 

Excellent point 😖

Think I must have got over excited and conflated the 60% into £600.

As the total tax due is really only £300 then it would still be £250 deducted under PAYE with the remaining £50 being collected via Simple Assessment.