Martin Lewis explains who pays tax on state pension – are you due a bill from HMRC? | Personal Finance | Finance
Martin Lewis has shared the key details on who pays tax on their state pension.
The financial expert took to X to explain how the system works as he has had lots of questions about it as the topic has been raised in the build up to the General Election.
He shared some key facts, including: “The state pension is, and has always been taxable income. The full state pension is currently £11,500 a year.
“The standard personal allowance (the amount you can earn before you pay income tax) is £12,570 a year.
“So if you only get state pension income and nowt else, you won’t be taxed currently.”
The full new state pension is currently £221.20 a week, or £11,502.40 a year, which is just £1,000 a year away from being subject to income tax.
But he also pointed out that millions of pensioners have already been dragged into paying tax.
He said: “At the last available DWP data of 12.7m people of state pension age in the UK, 8.1 million will likely pay income tax as other income took them above the personal allowance. So roughly two thirds of state pensions do already pay tax.”
Mr Lewis added that this is the “standard situation” and does not apply to those on on old pensions, on SERPs or who have deferred taking their state pension.
He said some people may also have extra pension allowances above the standard personal allowance.
The Conservatives have put forward plans to increase the personal allowance each year in line with the triple lock, meaning those only on the state pension would never pay income tax.
Mike Ambery, retirement savings director at Standard Life, part of Phoenix Group, warned that the growing costs of the state pension means there will have to be Government action soon.
He told Express.co.uk: ” The state pension cost an estimated £125billion in the tax year 2023 to 2024, so it forms a sizeable chunk of public spending and as the UK has an ageing population this is likely to increase in the future.
“The next Government will have three main options if they view the current system as unaffordable – raise the state pension age further and more quickly than currently planned, means test the state pension or remove the triple lock and replace it with a double lock or another less generous option.
“Each measure would be unpopular and would impact the retirement plans of people across the wealth spectrum, as well as potentially increasing hardship in the years running up to and after retirement.”
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