Load WordPress Sites in as fast as 37ms!

Martin Lewis issues state pension tax update to all state pensioners | Personal Finance | Finance

Money expert Martin Lewis has issued an update to all state pensioners about tax on the state pension after a series of confusing news website headlines.

Martin told his millions of Twitter followers on Wednesday how he had been contacted by ‘quite a few people’ concerned that they will start to be taxed on their state pension. However, Martin explained that state pensioners are already taxed on their state pension, and always have been, and explained a ‘few simple points’ around pension income tax in a bid to ‘clear up possible confusion’. The issue is that the state pension amount is due to overtake the £12,570 Personal Allowance for Income Tax within two years, thanks to annual increases from the Triple Lock, which automatically uprates pension payouts each April.

Martin tweeted: “I’m getting quite a few people getting in touch, concerned about ‘The State Pension will start to be taxed’ on the back of newspaper articles. I thought it worth making a few simple points to clear up possible confusions…”

He added: “1. The State Pension is already taxable and always has been in my memory, in other words it counts towards your taxable income. Many State Pensioners who have other income too already pay income tax.”

Martin continued: “2. The stories are based on the fact the annual personal allowance – the amount you can earn before any tax is taken – is frozen at £12,570 (this is effectively a way of stealthily raising the tax people pay each year).

“3. The State Pension annual rise is currently based on a ‘triple lock’ (ie it rises with the highest of avg earnings, inflation or 2.5%).

“4. The stories are about the fact the triple lock means the current headline £11,973/yr State Pension may rise above the £12,570/yr personal allowance in a few years time. So some who’s only income is the State Pension would then pay tax on the portion above the personal allowance.”

Martin then went on to quote the £11,973 a year figure currently used to outline the full new state pension as ‘somewhat misleading’. This is because that is the amount that is only payable to a state pensioner on the new state pension with a full National Insurance record. Those on the old basic state pension, or who have an incomplete record, will be getting significantly less than that.

Martin added: “5. The £11,973/yr quoted is somewhat misleading. It’s the amount someone on the… FULL, NEW State Pension would get. Yet most pensioners (all who hit State Pension age before April 2016) are on the OLD pension, which has a lower basic amount. And many don’t get the full pension as they don’t have enough National Insurance years.

“So overall the fact ‘the State Pension alone may be taxable for some’, is primarily a function of the fact that personal allowance is frozen, and the State Pension rises significantly each year.”

Martin then suggested that increasing the Personal Allowance for everyone, or abolishing the Triple Lock, would both solve the problem.

He added: “One way politicians could avoid it would be to increase the personal allowance (for everyone or just for state pensioners) yet it’s worth being aware another way to do it would be to end the triple lock, so the State Pension doesn’t rise as high!

“I’m not aiming making any political point here. Just trying to explain how it works as I’ve had quite a lot of questions.”

Check Also

HMRC sending tax letters to four million UK households | Personal Finance | Finance

Millions of UK households are likely to begin receiving tax letters from the HMRC between …

The Ultimate Managed Hosting Platform
If you purchase through these links, I may earn a commission at no additional cost to you.