HMRC may target state pensioners who breach £597 annual limit
The complete new State Pension rate now stands at £230.25 weekly, equivalent to £11,973 yearly. However, this leaves pensioners collecting this sum merely £597 short of the £12,570 Personal Allowance threshold.
Any income above £12,570 faces 20 per cent tax - rising to 40 per cent beyond £50,270. The Low Incomes Tax Reform Group is now urging the Department for Work and Pensions (DWP) and HMRC to alert pensioners nearing this limit.
The organisation stated: "We think that DWP and HMRC should work together to ensure that pensioners are warned about possibly needing to pay tax on their State Pension in future. This should include setting out how the tax will be collected and the likely tax liability."
It added: "Some words of warning could, for example, be included with the State Pension notification letters that DWP send out each spring in advance of the April pension increases," reports Birmingham Live.
BBC and ITV star Martin Lewis was asked on his recent Sounds podcast: "Explain to me why any pensioner would want to increase their pension?
"You will be taxed 20 per cent over £12,570, which means you'll be worse off and you'll be asked to pay more in, you'd then have your benefits stopped if you're below the limit and that takes you below the limit and that takes you over the limit even by 10p."
Martin responded: "Let me split that into two. Without being rude, on the first bit you're talking nonsense. Okay, look, tax in this country is marginal. You only pay 20 per cent on the amount above the threshold.
"The State Pension has always been taxable if you have other income, it counts as taxable income. So look, let's say you add £1,000 a year to what you earn and that £1,000 is above the threshold.
"Yes it's taxed so you only get £800 of it. But you still get £800 more! Tax is marginal, you always want to earn more, you always receive more if you earn more.
"You might not get every pound more that you're being given but you're still, the more you earn the more you get, so the tax thing, that's a red herring."
He added: "The other one isn't - for those on very low incomes if you may be eligible for Pension Credit and you don't have any other income, the Pension Credit effectively tops you up to the full State Pension anyway so if you're gonna buy years to top you up to the full State Pension as it is possible that you would have simply got it via pension credit anyway."
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