Thousands of State Pensioners set to get a pension increase of up to £461 a year are facing having to start paying income tax. While the amount pension will rise is expected to be confirmed by the government under the “triple lock” guarantee it is predicted people on the new State Pension will have £8.80 a week more.
However this is only going to be one in four pensioners on the higher rate with the remaining three in four receiving the lower old State Pension. This could still rise by £353 a year – £6.78 a week.
But the increase for those on the higher level means they will be receiving £12,003.68 a year. And it means it puts them very close to having to pay income tax even with only a tiny amount of additional income.
Figures from the Liberal Democrats say 240,000 people face crossing the personal allowance threshold next year making them liable for income tax. Sir Steve Webb, the former Liberal Democrats pensions minister said: “From next year, roughly three in four UK pensioners will have to pay income tax, and just over a third of a million will be dragged into the tax net for the first time since they retired.”
So how much would people have to pay? The current personal tax-free allowance is £12,570. This means any income up to that point is tax free.
However if you go over that amount you will pay 20% of any additional income in income tax – up to earnings of £50, 270 when this would jump to 40%. This would increase again to 45% for those earning more than £125,140.
It means if you have just £1,000 of additional income over the tax free limit you would have to pay £200 in tax. But those who work are likely to be hit harder – even working for a few hours on minimum wage.
A pensioner with a job on the current minimum wage of £11.44 working 10 hours a week earns £5,948.80 a year. For those on the higher New State Pension with most of the tax-free allowance gone this would mean paying tax on all but around £566 of their pay giving a tax bill of £1,076.50.
For those on the older State Pension, anyone who reached State Pension age before April 2016, they would have a higher amount of remaining tax free allowance – £3,371.96 – but would still pay more than £515 of their income in tax.
Those with a private pension are also likely to be hit as any income from that will need to be added to the state pension as well as any other earnings. They would then pay 20% of anything over the tax-free allowance.
The figures could change if the personal tax-free allowance is altered. Minimum wage is also set to rise which could make the bill bigger.