New Pension(er) Tax Allowance

hugheskevi

https://forums.moneysavingexpert.com/discussion/comment/82185138#Comment_82185138

I found it interesting that the taper was set so as to cause a marginal tax rate of 53%.

The PAYE system only permits as a maximum of 50% of gross income to be deducted in income tax. So someone who has a full new State Pension and a small private pension income that falls entirely within the new taper band cannot pay the full amount and so will be subject to Simple Assessment for a small amount - exactly what the policy sought to avoid.

Initially, with such a small taper range, this will be a very minor issue, but as the taper range rapidly expands it will affect more people. Setting the taper so as to produce a marginal tax rate of 50% would have been a simple measure to avoid this.

MeteredOut

https://forums.moneysavingexpert.com/discussion/comment/82184586#Comment_82184586

I guess because cliff edges are usually seen as a bad thing.

SnowMan

https://forums.moneysavingexpert.com/discussion/comment/82185179#Comment_82185179

I was trying to imagine the discussions when they set the taper.

'We could set it at £1 per £2 of income but that would be a marginal tax rate of 70% but we wouldn't be able to collect it then. OK we'll set it at £1 per £4 to give a 45% marginal tax rate. Oh oh but the fiscal rules can we not squeeze a bit more out of it by going to £1 per £3. But that would give a marginal tax rate of 53%, still too much to collect. OK so we'll set the lower limit at £13,037 (= 52 x 250.70) but in practice only £13,027 (= 51 x 250.70 + 1 x 241.30) of state pension would be taxable, and that gives us a bit more scope to collect from the private pension and then worst case scenario is £146 of the £149.80 tax can be collected and then we write off the rest as de minimis. Brilliant let's do that'

mrklaw

just give everyone drawing state pension (they should have a record of this) a tax code equivalent to the full state pension?

would have been simpler, but slightly more expensive for the government.

the temporary solution I’m guessing buys them time to get HMRC up to speed being able to tax state pension at source perhaps? I don’t see any reason it shouldn’t be taxed - its more the ‘10 million simple assessment letters’ that would slow HMRC to a crawl causing this I think

kermchem

As I understand it when an income source is taxed it is the income source that pays the tax to HMRC rather than HMRC collects it. The reason why SP is not, and cannot be, taxed at source is with DWP processes not HMRC. And do not suggest that DWP updates its software. 😂

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/82185612#Comment_82185612

Yet they are happy to deduct tax from the State Pension deferral lump sums.

zagfles

https://forums.moneysavingexpert.com/discussion/comment/82185612#Comment_82185612

How do DWP pay other taxable state benefits? I'm pretty sure I got P60/45 when claiming JSA many years ago.

squidgery

OK but here's a thing - what if one's total state pension is actually above even this new allowance figure - courtesy of various additions including a 2 year deferral beyond what was the normal retirement age for women in/around 2007 ……. what appears to be a reassurance that nobody on state pension alone will pay tax is surely open to question…

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/82185810#Comment_82185810

It'll be better to concentrate on the detail rather than (perceptions of) the soundbites, so read through the official tax explainer document linked in the first post.

Veloflyer

https://forums.moneysavingexpert.com/discussion/comment/82185394#Comment_82185394

You are asking to make tax simpler. This is heresy, and not conducive to confusing the hell out of ordinary folk so they cannot understand whether they are being taxed correctly. Back in your box O sinner…..