State pension but i pay tax

zagfles

xylophone said:

The chancellor stated nobody would pay tax on a state pension if its there only income.I only get a state pension and its my only source of income,but because I paid into NIC for 52 years (D.O.B 17.08.1952) entitling me to a pension of £1199.per 4 weeks I have a tax bill for £467 for year 24/25 which has to be paid by Jan 26.So what the chancellor said is a lie 

No, that's not a lie she told.

As above, her statement was

The government will ease the administrative burden for pensioners whose sole income is the basic or new State Pension without any increments so that they do not have to pay small amounts of tax via Simple Assessment from 2027-28 if the new or basic State Pension exceeds the Personal Allowance from that point.

The SP has always been taxable income.

The basic state pension is currently £176.45per week (£705.80 per four weeks, £9175.40 per annum).

The NSP is currently £230.25 per week   (£921 per four weeks, £11973 per annum).

At the moment, a pensioner whose sole income was either of the above would not be paying income tax - (Personal Allowance £12,570 per annum). He would not be paying income tax next year either.

You are receiving pension income higher than either of the above (£299.75 a week, £1199 every four weeks, £15,587 per annum).

This is £3017 per annum higher than your PA.

If instead of being contracted in to SERPS/S2P you had been contracted out into an occupational pension, to the extent that the pension brought you to a level of income higher than your PA, you would be paying tax. The occupational pension would be coded to collect the tax.

For example, take John who has only Basic SP but an occupational pension of £6000 a year (£500 per calendar month)

His state pension is paid gross.

His total income is £15,175 per annum.

Deduct £12,570, so £2605 taxable at 20%.  He owes HMRC £520.

The code on his pension will be such as will give him a net monthly payment of approx £456 a month.

You pay your tax in one lump sum annually - you could argue that you are in a better position than John because you can earn some interest while its in your account?

That was in the budget document. But speaking to Martin she said that anyone with the state pension as their only income won't have to pay tax. No qualification like "without any increments". 

Martin Lewis: The Chancellor confirms State Pension tax rules

xylophone

I hadn't seen the Martin Lewis transcript of his discussion with Rachel Reeves.

I've also just read this.

https://www.telegraph.co.uk/business/2025/11/28/state-pensions-to-be-shielded-from-reevess-tax-rises/

The full new state pension will increase to £12,548 from next April.

The minimum possible rise of 2.5pc in 2027 would take it above the £12,570 threshold of the tax-free personal allowance for the first time, to £12,862.

This means if no action was taken, a pensioner with no other income would owe £58 of tax as a result, rising to £256 after the next general election.

But the Chancellor promised on Thursday that affected pensioners would not have to pay any income tax at all.

“In this parliament, they will not have to pay the tax. We are looking at a simple workaround at the moment,” she told ITV News.

The Treasury said it will exempt people whose sole income is their state pension from a demand to pay tax, even on state pension income above the personal allowance.

However, people who also have a private pension will face a tax demand on all earnings above £12,570.

This will include both money above this level from the state pension, and their private income – meaning even someone with a small pot paying less than £1,000 a year would have to pay tax on the state pension.

The Treasury confirmed that only pensioners whose “sole income is the basic or new state pension” will qualify for its proposed exemption.

Millions of pensioners who have private savings, or are receiving income from a state earnings-related pension scheme (Serps) will still face demands from the taxman.

Serps allowed people born in the early 1950s to claim an extra sum on top of their state pensions based on their lifetime earnings. The scheme ended in 2002.

A Treasury spokesman suggested that retirees on the basic state pension and a low Serps income could also enjoy an exemption, although they refused to provide further details...........

Experts warned that the Chancellor risked creating chaos with the new policy...........

(Steve Webb)  said: “There is a risk of a two-tier system where people on the new state pension are protected whilst people on the old system and whose total pension is exactly the same are not protected...........

And so on.......A tangled web, eh?

SacredStephan

Remember this, from April 2024, under the previous Govt?
https://forums.moneysavingexpert.com/discussion/6524831/lies-about-income-tax-on-state-pension-on-sky-news-kay-burley

Mel Stride has since accepted a knighthood.

zagfles

xylophone said:

I hadn't seen the Martin Lewis transcript of his discussion with Rachel Reeves.

I've also just read this.

https://www.telegraph.co.uk/business/2025/11/28/state-pensions-to-be-shielded-from-reevess-tax-rises/

The full new state pension will increase to £12,548 from next April.

The minimum possible rise of 2.5pc in 2027 would take it above the £12,570 threshold of the tax-free personal allowance for the first time, to £12,862.

This means if no action was taken, a pensioner with no other income would owe £58 of tax as a result, rising to £256 after the next general election.

But the Chancellor promised on Thursday that affected pensioners would not have to pay any income tax at all.

“In this parliament, they will not have to pay the tax. We are looking at a simple workaround at the moment,” she told ITV News.

The Treasury said it will exempt people whose sole income is their state pension from a demand to pay tax, even on state pension income above the personal allowance.

However, people who also have a private pension will face a tax demand on all earnings above £12,570.

This will include both money above this level from the state pension, and their private income – meaning even someone with a small pot paying less than £1,000 a year would have to pay tax on the state pension.

The Treasury confirmed that only pensioners whose “sole income is the basic or new state pension” will qualify for its proposed exemption.

Millions of pensioners who have private savings, or are receiving income from a state earnings-related pension scheme (Serps) will still face demands from the taxman.

Serps allowed people born in the early 1950s to claim an extra sum on top of their state pensions based on their lifetime earnings. The scheme ended in 2002.

A Treasury spokesman suggested that retirees on the basic state pension and a low Serps income could also enjoy an exemption, although they refused to provide further details...........

Experts warned that the Chancellor risked creating chaos with the new policy...........

(Steve Webb)  said: “There is a risk of a two-tier system where people on the new state pension are protected whilst people on the old system and whose total pension is exactly the same are not protected...........

And so on.......A tangled web, eh?

It's a complete mess. They could just say they're working on a solution and stop making committments. My bet's on the reintroduction of a pensioner's tax allowance set at the level of the NSP, tapered at around £20k. And people with a state pension above NSP would still be liable to tax, as the Treasury indicated but RR didn't in her interview with Martin. 

Seaquester

To the best of my knowledge my pension was never contracted out .I only ever paid NIC ,but i think,(but not sure )that because I was paying a lot in NIC (upto 12% of my salary) that it qualified me for a higher state pension.I didnt understand it at the the time and I dont now.But at the end of the day why should I pay tax on a state pension(my only income) after paying into the system diligently for 52 years .Its unfair and wrong.When people reach state pension age after paying in to the system all there lives there state pension should be exempt from tax regardless (or particulaly)no matter what rate of state pension they receive.Oh BTW  in the letter I received if not paid then it would be passed on to a debt collector company.I know that had I not worked all my life that in the autumn of my life I would be better off getting all the benefits others get .
It infuriates me and I think its wrong

SVaz

So someone getting £25000 from an old State pension + serps shouldn’t have to pay any tax then?
Yes,  that would go down well with those workers on minimum wage who pay tax on £12k+ of their wages.
Actually,  being a military veteran and serving my country for 12 years perhaps I shouldn’t have to pay tax on my forces pension OR my State pension?    We can all come up with ‘reasons’ why we shouldn’t pay tax 😉
I’d rather have a functioning country thanks.
Come to think of it,  pensioners should pay NI too, after all they are the biggest users of the NHS. 

xylophone

To the best of my knowledge my pension was never contracted out .I only ever paid NIC ,but i think,(but not sure )that because I was paying a lot in NIC (upto 12% of my salary) that it qualified me for a higher state pension.I didnt understand it at the the time and I dont now.But at the end of the day why should I pay tax on a state pension(my only income) after paying into the system diligently for 52 years

First of all, the State Pension is income that is liable to tax. 

 You may have some Graduated Pension if you are old enough to have been employed between 1961 and 1975 - this was an early form of additional, earnings-related State Pension  that was paid to those who contributed to the Graduated Pension Scheme, replaced by SERPS (to 2002) then S2P (to 2016) when the single tier New State Pension was introduced).

See

https://en.wikipedia.org/wiki/State_Earnings-Related_Pension_Scheme

https://en.wikipedia.org/wiki/State_Second_Pension

Your higher rate NI contributions enabled you to accrue additional state pension on top of the basic rate.

In respect of tax, you have a Personal Allowance, that is to say an amount of income that is liable to tax but  which you are allowed to receive tax free.

It would appear that your SP is your only taxable income. In your case it is higher than the PA.  You pay tax on the amount over the PA.

When people are members of non state schemes, they/their employers also contribute for many years.  When the pension is drawn, just like SP, it is taxable income.

Seaquester

SVaz said:

So someone getting £25000 from an old State pension + serps shouldn’t have to pay any tax then?
Yes,  that would go down well with those workers on minimum wage who pay tax on £12k+ of their wages.
Actually,  being a military veteran and serving my country for 12 years perhaps I shouldn’t have to pay tax on my forces pension OR my State pension?    We can all come up with ‘reasons’ why we shouldn’t pay tax 😉
I’d rather have a functioning country thanks.
Come to think of it,  pensioners should pay NI too, after all they are the biggest users of the NHS. 

Who gets £25000 state pension??????.pensioners to pay NIC too ??????dont you think we have contributed enough ,i think  your comments will be treated with the contempt they deserve by the overwhelming majority of pensioners.
However you are entitled to your view.

SacredStephan

Seaquester said:

Who gets £25000 state pension?

Archived from the Daily Telegraph a few months ago:
https://archive.ph/BShDu

hyubh

Seaquester said:

SVaz said:

So someone getting £25000 from an old State pension + serps shouldn’t have to pay any tax then?
Yes,  that would go down well with those workers on minimum wage who pay tax on £12k+ of their wages.
Actually,  being a military veteran and serving my country for 12 years perhaps I shouldn’t have to pay tax on my forces pension OR my State pension?    We can all come up with ‘reasons’ why we shouldn’t pay tax 😉
I’d rather have a functioning country thanks.
Come to think of it,  pensioners should pay NI too, after all they are the biggest users of the NHS. 

Who gets £25000 state pension??????.pensioners to pay NIC too ??????dont you think we have contributed enough ,i think  your comments will be treated with the contempt they deserve by the overwhelming majority of pensioners.
However you are entitled to your view.

The key point is xylophone's final one:

When people are members of non state schemes, they/their employers also contribute for many years.  When the pension is drawn, just like SP, it is taxable income.

Say someone very like you happened to be employed by a company that had its own contracted-out pension scheme. Instead of accruing additional state pension, they would have accrued pension in the company's scheme. Come retirement, they will be paying income tax for exactly the same reason you are, viz, their total income (a lower state pension than yours, but the occupational pension alongside) is above the personal allowance.