State pensioners are reportedly “confused” by letters they’ve received from HMRC. One pensioner wrote to Tom Selby, an expert at AJ Bell, explaining that they had received “a notification” from HMRC for the upcoming tax year.
The letter has “caused some confusion as it indicates that the state pension is taxable”, the pensioner wrote in a letter to the I paper, adding: “I have always thought that the state pension was not taxable.”
The letter states that state pension income ‘is taxable but tax is not taken off the payments before they are paid to you’, according to the pensioner. Mr Selby clarified the rules surrounding the state pension, stating: “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.”
Your State Pension income is considered taxable earnings, but it’s paid without any tax being deducted, reports Birmingham Live.. This typically means that any Income Tax you owe is paid by your private pension provider, resulting in a reduction of your other pension income before you receive it.
Your tax code informs your provider about the amount of tax you need to pay. For instance, if you receive £5,000 annually from your private pension and £11,500 from the State Pension, your private pension provider will usually cover any tax you owe on the total £16,500 you receive.
If you don’t have other income sources and earn enough to be liable for tax, you’ll need to handle any tax payments yourself.