Over 60s have been urged to learn more about their potential tax liabilities
HMRC has told people nearing retirement age to learn some vital facts about taxes, urging them to “pop the kettle on” and learn three essential facts before their brew finishes. This comes shortly after the OBR reported that 600,000 pensioners will be drawn into paying tax.
Taking to X, HMRC explained 3 ‘good-to-knows’ about the state pension, adding: “Tax in retirement works like usual. Up to £12,570 of your income may be tax-free (your Personal Allowance). Anything above that is taxed based on how much you earn.”
State pension counts as taxable income
Taxable income can include:
- State pension
- Personal pensions
- Workplace pensions
- Savings
- Investments
All of your taxable income streams are added up to figure out what your total income for the year is. If this figure is between £12,570 and £50,270 you’ll pay the basic tax rate on the amount over £12,570.
Although the state pension is a taxable income, it hasn’t reached the personal allowance threshold, meaning those who only receive this income don’t have to pay tax on it. Millions of people over the state pension age already have to pay HMRC, but hundreds of thousands more could be passively dragged into taxable income thresholds.
Currently, the full new state pension alone is worth £241.30 a week, roughly equal to £12,547.60 a year. This means that those receiving the full sum, which is around half of recipients, could trigger an income tax bill if they earn just £30 elsewhere during the year.
If your annual income is between £50,271 to £125,140 you’ll be the higher rate and anything over £125,140 will be taxed at the additional rate income tax.
It’s anticipated that the next annual increase for state pension will exceed the personal allowance threshold. Chancellor Rachel Reeves assured that people whose only income is the state pension will not face tax bills.
State pension age is rising
State pension age is the earliest age a person can access their state pension funds, although they don’t have to access it at this age and it can be deferred.
State pension age will be rising from 66 to 67 for men and women over the next two years. This gradual change will directly affect those born between April 1960 and March 1961.
Everyone born after these dates will face a flat state pension age of 67. Further increases are anticipated around the 2040s.
State pension depends on National Insurance
The amount of new state pension you receive will depend on your National Insurance record. You need a minimum of 10 qualifying years in your record to qualify for the payment at all.
A qualifying year is a year in which you either received National Insurance credits, paid National Insurance or were covered with voluntary contributions.
To receive the full £241.30 per week, you need around 35 qualifying years. As of 2023, only around half of pensioners eligible for the new state pension were getting the full amount.
