State Pensioners Receive Unexpected HMRC Letters Over Tax Liabilities
Retirees relying on state pensions are being sent unexpected letters from HM Revenue and Customs (HMRC) after it emerged that many were unaware their state pension income is subject to tax. Typically, these payments are made without tax deducted at source, leading to confusion among pensioners.
Triple Lock Hike Increases Tax Threshold Concerns
Due to the Triple Lock hike, which the Labour Party government has affirmed its commitment to, the full new state pension will soon sit just under £30 below the personal allowance threshold. This change, effective from next week, heightens the likelihood that those with additional income will face a tax bill.
Sarah Pennells, a consumer finance specialist at Royal London, commented, "The fact that approximately four in 10 adults do not know the state pension is taxable is not surprising as it's paid without tax being taken off." She added, "However, from April, the full new state pension will be less than £30 below the personal allowance, so it's more important than ever that people understand what tax they may have to pay."
Modest Earnings Could Push Retirees into Tax Payments
This situation means state pensioners with "modest" additional earnings could be pushed into paying tax, according to Ms Pennells. Research from Royal London reveals that around 68% of retired people who are not working paid tax on their pension income, with the average bill amounting to £4,500.
Ms Pennells further explained, "With the State Pension age now at 66 and due to start rising to 67 from April, many people are only too keen to claim their State Pension." She advised, "If you're thinking of delaying claiming your State Pension, then it's a good idea to assess whether it is right for you. Getting the extra money may look attractive, but you are giving up the right to receive any State Pension payments until you stop deferring, and it could take years to see the benefit."
She also noted that surviving spouses or civil partners can only inherit additional pension payments if the person who deferred reached state pension age before April 6, 2016.
