Writing into Tom Selby, an AJ Bell expert, one pensioner explained they woke up to “a notification” from HMRC for the next tax year.”
State pensioners are being left “confused” by letters from HMRC on their doormat. Writing into Tom Selby, an AJ Bell expert, one pensioner explained they woke up to “a notification” from HMRC for the next tax year.”
Explaining how the letter has “caused some confusion as it indicates that the state pension is taxable”, the pensioner went on, writing to the I paper: “I have always thought that the state pension was not taxable.”
The letter says state pension income ‘is taxable but tax is not taken off the payments before they are paid to you’, the pensioner explained. Mr Selby helpfully stepped in, clearing up the rules around the state pension.
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He said: “In terms of taxation, your state pension does count towards your income for income tax purposes but is not directly taxed. In the jargon, you might be told that the payment is made ‘net of tax’, which just means without any income tax being paid.
“It’s probably easiest to show how this works through an example. Take someone who hasn’t built up a 35-year National Insurance record – required to receive the full state pension amount – and so is entitled to a reduced state pension worth £9,000 per year.
“No tax will be taken from this income directly, but it will still use up £9,000 of their personal allowance (below which the income tax rate is 0 per cent), which in 2024/25 is set at £12,570.”
Income from your State Pension counts as taxable earnings, but it’s paid without tax deducted. This means any Income Tax you owe is usually paid by your private pension provider, so your other pension income is reduced before you receive it. Your tax code tells your provider how much tax you need to pay.
For example, if you receive £5,000 a year from your private pension and £11,500 from the State Pension, your private pension provider will usually pay any tax you owe on the total £16,500 you receive.
If you don’t have other sources of income and earn enough to pay tax, you’ll need to pay any tax yourself.
