Tax on state pension

jabba50

My Wife's only income is the pre 2016 state pension.  We are both 75 year old.

      Rachel Reeves has confirmed that those whose only income is the State Pension will not pay any Income Tax on it during this Parliament. as the full new State Pension is set to rise above the Income Tax-free allowance from April 2027.
I have the state pension and a modest company pension so already pay income tax.

  However, my wife's weekly state pension of £176.45 also has pre 2016 additional state pension of £16.41 and a post additional state pension of £45.47 along with a Graduated retirement pension of £1.96 the grand total of £240.29 per week. This an annual total of  £12,495 .08p

 With next years planned Triple lock increase of 4.8% and the CPI increase 3.8 % to the Additional state pension sections puts her pension over the £12570 tax free limit next year and not the 2027 forecasted.  This will apply to many thousands of pre 2016 state pensioners.

   My question ; is the additional state pension classed as another income or is it part of the basic state pension, otherwise she will be liable for tax in April 2026. 
  My other concern is that currently I claim 10% of her personal allowance a saving on my tax bill of £252 per year so how will that be affected? Or are we worrying unnecessarily.

QrizB

jabba50 said:

Rachel Reeves has confirmed that those whose only income is the State Pension will not pay any Income Tax on it during this Parliament. as the full new State Pension is set to rise above the Income Tax-free allowance from April 2027.

The Chancellor has made various statements, not entirely consistent with one another The detail as yet to be published. Until that time, we can only speculate.

jabba50 said:

My question ; is the additional state pension classed as another income or is it part of the basic state pension, otherwise she will be liable for tax in April 2026. 
My other concern is that currently I claim 10% of her personal allowance a saving on my tax bill of £252 per year so how will that be affected? Or are we worrying unnecessarily.

The additional state pension is not part of the basic state pension.

Once you are both basic-rate taxpayers, marriage allowance will simply be transferring £252 of one partner's tax liability to the other.

Dazed_and_C0nfused

As it stands the new policy won't apply to her as she gets more than the basic State Pension.

No one knows about Marriage Allowance yet but at the moment eligibility is based on whether you a higher rate payer or not.  If she isn't higher rate she is eligible, same goes for you.

jabba50

 Thanks for the replies.  To benefit as a couple, you (as the lower earner) must normally have an income below your Personal Allowance - this is usually £12,570. My wife only has the state pension as described in original post , so her sole annual income at the moment is £12495, £75 less than threshold.  I pay income tax at 20% so I can have a allowance transfer of  £1260 worth £252 pa to me.
My query is a pension increase in  2026 on my wife's income of £8 a week (approx ) will cancel the marriage allowance,  seems a bit harsh as it will reduce our income by £252 plus any tax paid by my wife due to the 2nd state pensions,?

QrizB

jabba50 said:

 My query is a pension increase in  2026 on my wife's income of £8 a week (approx ) will cancel the marriage allowance, 

Why do you think this will cancel the marriage allowance?

Will your wife become a higher-rate taxpayer?

Dazed_and_C0nfused

jabba50 said:

 Thanks for the replies.  To benefit as a couple, you (as the lower earner) must normally have an income below your Personal Allowance - this is usually £12,570. My wife only has the state pension as described in original post , so her sole annual income at the moment is £12495, £75 less than threshold.  I pay income tax at 20% so I can have a allowance transfer of  £1260 worth £252 pa to me.
My query is a pension increase in  2026 on my wife's income of £8 a week (approx ) will cancel the marriage allowance,  seems a bit harsh as it will reduce our income by £252 plus any tax paid by my wife due to the 2nd state pensions,?

It won't cancel it, that would only happen if she decides to cancel it.  Contrary to what gov.uk may say basic rate payers are eligible for Marriage Allowance and HMRC would only cancel it if one of you became a higher rate payer.  Or she asked for it to be cancelled.

Maybe this question would be better directed at your MP as it's parliament who ultimately decide what legislation HMRC have to follow.

sheramber

If you have the transfer marriage  from your wife she no longer has personal allowance of 12570.

Her tax free allowance is reduced by the transferred amount so her tax free amount is  now 11310.

Her current year income of  £12495 is more than 11310  so she is over her reduced allowances this year and will be liable to pay tax on the excess. 

molerat

Has she not received a simple assessment for 24/25 ?  It is likely she is liable for £153 tax for that year and will be due £237 for this and £350 next.

Albermarle

molerat said:

Has she not received a simple assessment for 24/25 ?  It is likely she is liable for £153 tax for that year and will be due £237 for this and £350 next.

Possibly not - I checked on Friday and my calculation for 24/25 has still not been done. 

molerat

Looks like £33 - (£11485 - £11310) x 19% - is below the scope for collecting, sister in law has had 24/25 updated as "paid right amount of tax" of £0 and not received a bill.

Albermarle

Albermarle said:

molerat said:

Has she not received a simple assessment for 24/25 ?  It is likely she is liable for £153 tax for that year and will be due £237 for this and £350 next.

Possibly not - I checked on Friday and my calculation for 24/25 has still not been done. 

Update- It has now been done - I owe £220, which I can live with