New state pension not eligible for tax ??????

wisdomseeker25

Afternoon all, 
a question I hope you can help with, in March 2028 I will be eligible to claim my full new state pension, have already checked so I am sure of that. I also have a small SIPP saved, this is not in drawdown and not being claimed nor will it be.
Can you tell me if under the new pension and income tax considerations will I end up paying income tax on my state pension because I have a SIPP ( not being drawn) or will I
it be assumed that my only source of income is my state pension ?
I couldn’t find anything in the previous budget statement that gave me specifics. 

Thanks in advance

born_again

All will become clear over time, once they have worked out all the details.

singhini

We don’t know for sure, but here’s my wild stab in the dark:

Current state pension is around £11,970, expected to rise by 4.8% in April 2026, and let’s assume 2.5% for the following two years, bringing it to roughly £13,200 by 2028/29.

That’s above the current personal allowance, so normally you might expect to pay tax. However, the government has indicated you won’t, provided you have no other income (so keep that SIPP untouched!).

But what counts as “income”? Will the Treasury argue that dividends, bank interest, or rental income mean your state pension isn’t your only source, and therefore you have to pay tax?

Who knows… who dares to dream?

MeteredOut

born_again said:

All will become clear over time, once they have worked out all the details.

You really think so?

OP, as said above - no-one knows yet what the details are.

On the face of it, someone who is only paid the new state pension from April 2027 until the end of the current parliament will not pay tax, even if they have the ability to draw down another source of income but chose not to do so (be that SIPP, DB pension or something else), However,  they could also build in rules that people in that position (perhaps with pots over a certain size) don't benefit since it is a clear loophole that people could utilise, though I imagine many would not chose to live off the state pension only if they could live more comfortably.

ColdIron

Who knows. The mechanism and constraints are as yet unknown

Frankly, I wouldn't put much store in speculation this far out, official or otherwise

There has been considerable uncertainty on matters financial to date, I expect this to be a feature for some time

Cobbler_tone

MeteredOut said:

born_again said:

All will become clear over time, once they have worked out all the details.

You really think so?

OP, as said above - no-one knows yet what the details are.

On the face of it, someone who is only paid the new state pension from April 2027 until the end of the current parliament will not pay tax, even if they have the ability to draw down another source of income but chose not to do so (be that SIPP, DB pension or something else), However,  they could also build in rules that people in that position (perhaps with pots over a certain size) don't benefit since it is a clear loophole that people could utilise, though I imagine many would not chose to live off the state pension only if they could live more comfortably.

It wouldn’t be much of a loophole. As you said, unless it’s a small private pension you’ll need it, plus when you finally draw it you’ll still get hit for tax. Hardly worth it for a few quid, considering you could keel over at any point! 

Qyburn

Well you could play the game, every other year draw twice as much from your SIPP as you need for one year, then next year draw nothing. So you SP would be tax free every other year.  I could do that without hitting HR tax.  Or as a couple alternate, draw from His SIPP on odd years, Hers on even.

wisdomseeker25

Thanks for the replies everyone, I guess I will wait with bated breath and crossed fingers for a while and see what comes out in the detail……the devil i guess.
Ta

Aretnap

singhini said:

But what counts as “income”? Will the Treasury argue that dividends, bank interest, or rental income mean your state pension isn’t your only source, and therefore you have to pay tax?

Very obviously all of those things are income. The most can hope for on that front for would be that small amounts of interest or dividend income, below the respective tax free allowances, might be disregarded. Obviously if you do happen to own a couple of rental properties, nobody is going to be impressed with a claim to be a poor impoverished pensioner who can't afford to pay a bit of tax on your message state pension.

singhini

Aretnap said:

singhini said:

But what counts as “income”? Will the Treasury argue that dividends, bank interest, or rental income mean your state pension isn’t your only source, and therefore you have to pay tax?

Very obviously all of those things are income. The most can hope for on that front for would be that small amounts of interest or dividend income, below the respective tax free allowances, might be disregarded. Obviously if you do happen to own a couple of rental properties, nobody is going to be impressed with a claim to be a poor impoverished pensioner who can't afford to pay a bit of tax on your message state pension.

That's the key bit im hypothetically drawing attention to (and perhaps could have done a better job), that is will it be below tax free allowances or not????

If you disregard interest and dividends below the allowances, should you still allow the mortgage-interest tax credit to be applied to the rental income which would reduce a persons tax bill (as it currently does) or will people screen that's an outcry.

Personally i think you should pay tax even if your only source of income is the state pension............ BUT i also think the personal allowance should never have been frozen (if state pension can have a triple lock attached to it........ so should Personal Allowance)  

phlebas192

I think the most likely outcome is that they will end up increasing the personal allowance for everyone to the amount of the new basic state pension level. The second most likely is that they will do so just for those in receipt of it. Anything else is likely to prove too complex to administer.

The absolute last thing anyone wants is to introduce a new cliff edge where someone in receipt of both the SP and a small extra income will be no better off - or even worse off! - than someone without it.