State Pension... is it taxable?

Discussion in 'Legal and financial issues' started by piph, May 3, 2015.

  1. piph

    piph Registered User

    Feb 4, 2013
    1,530
    Northamptonshire
    Can anyone tell me whether the Sate Pension is taxable, and should be included in the Personal Tax Allowance?

    The reason I'm asking is that Mum has been getting her State Pension since she was 60 - she's now 87. She hasn't worked since then. She has also been receiving a small pension linked to her employment since that time. When my dad died almost 12 years ago, she became the beneficiary of a small Widows and Orphans pension on which she has been paying tax. However, these two 'private pensions' only amount together to about £3000 a year.

    If the State pension is included as income in the Personal Tax Allowance of £10,000 a year, then I can understand it, but if not, then surely she shouldn't be paying any income tax at all?

    Not sure if I'm working it out correctly, so if one of you financial wizards out there can help, I'd be most grateful.
     
  2. jeany123

    jeany123 Registered User

    Mar 24, 2012
    19,049
    Durham
  3. piph

    piph Registered User

    Feb 4, 2013
    1,530
    Northamptonshire
    Thanks for that - fairly simple really, seems it IS included as income for tax allowance purposes. Oh well,Mum isn't going to get a huge tax rebate going back 27 odd years!

    Nice thought whilst it lasted!
     
  4. jimbo 111

    jimbo 111 Registered User

    Jan 23, 2009
    5,078
    North Bucks
    Hello piph
    I am sure you will get more help from members
    but my own experience I believe is typical
    I have a 'works' pension and the State pension
    Income tax is not taken direct from the state pension but the income from my works pension is added to my state pension to give a Total Income

    If the total Income is higher than the Tax Allowance , then you pay tax on the excess
    and this is deducted by the works pension provider from the value of your works pension

    In my case ( and I think this applies to everyone ) the pension provider for my 'works pension is given my tax code and deducts tax from the works pension
    The tax code takes into account the state pension and the works pension value

    So I appear to be paying an enormous amount of tax on my works pension , but it is in fact also deducting the tax I would have paid on the state pension

    This of course , only applies if your combined income is in excess of your tax
    allowance
    jimbo
     
  5. jugglingmum

    jugglingmum Registered User

    Jan 5, 2014
    5,026
    Female
    Chester
    Jimbo's got it spot on, HMRC will always 'code out' the state pension so if you have another pension the allowance will be reduced by the annual state pension that is received.

    It can get complicated and go wrong where there is more than one pension and you should check the tax code which has been issued to ensure it is correct for each pension (source of income).

    Even where mistakes have been made you can normally only go back 4 years now.
     
  6. nitram

    nitram Registered User

    Apr 6, 2011
    18,828
    Male
    North Manchester
    "...where there is more than one pension and you should check the tax code which has been issued to ensure it is correct for each pension..."

    I have three private pensions and all HMRC do is put two of them on basic rate (BR code) and apply a code to the third taking into account state payments, the two on BR do not get a mention on my notice of coding.

    "...you should check the tax code which has been issued..."

    The bit they always get wrong on mine is the state pension, they keep on applying the annual increment on basic pension to components of my state pension with lower increments thus giving an incorrectly high code for my third private pension.

    When my wife died the DWP and HMRC really messed up, I inherited 13p/Wk of her state pension and instead of this being added to my pension it ended up being recorded as my total state pension - £6.76 pa - resulting in a high code for my taxed private pension. Both departments agreed it was incorrect but denied it was their fault, 'systems' would not allow a change, my wife died in May and it did not get fully sorted until the end of the tax year in April
     
  7. SueShell

    SueShell Registered User

    Sep 13, 2012
    403
    Orpington

    State pension IS taxable as its all income. Whether you pay tax depends whether you have any other pensions and whether it goes above the taxable allowance, which I think is now £10,600. Normally the government lump all pensions together and take tax from an occupational pension at source and not direct from the state pension. Hope this helps.
     
  8. SueShell

    SueShell Registered User

    Sep 13, 2012
    403
    Orpington
    You get taxed through your taxable allowance code for state pension plus only one occupational pension. If you have more than one occupational pension or have inherited someone else's eg a spouses, you are taxed at basic rate tax for the additional pensions, as I know to my cost from the arguments I've had with HMRC about this. Sue
     
  9. nitram

    nitram Registered User

    Apr 6, 2011
    18,828
    Male
    North Manchester
    "...If you have more than one occupational pension or have inherited someone else's eg a spouses, you are taxed at basic rate tax for the additional pensions..."

    That's what I said, the exception is when no single payment uses the complete tax allowance.

    Did you expect to get the full allowance on each payment?
     
  10. SueShell

    SueShell Registered User

    Sep 13, 2012
    403
    Orpington
    No, and I was just answering someone elses query!! But you would think they'd lump them altogether and pay tax on the lot. However, I pay BR on the stupid sum of £11 a month and receive a separate P60 at the end of the financial year. Not worth having!
     
  11. nitram

    nitram Registered User

    Apr 6, 2011
    18,828
    Male
    North Manchester
    "... But you would think they'd lump them altogether and pay tax on the lot...."

    That infers self assessment not PAYE.

    You do 'pay tax on the lot' , does it really matter which income stream(s) the tax is deducted from?
     
  12. patsy56

    patsy56 Registered User

    Jan 14, 2015
    840
    Fife Scotland
    I was under the impression that as long as you didn't reach £10500 then you were ok. BUT if you had a company pension then that was taxed as you didn't pay tax when it was taken off your salary
     
  13. nitram

    nitram Registered User

    Apr 6, 2011
    18,828
    Male
    North Manchester
    The state pension is added to all your other pensions and you pay tax on the total.

    If the total exceeds your personal allowance one of your private pensions is allocated a tax code which ensures the correct tax is paid. The state pension does not come under PAYE and therefore cannot be allocated a tax code.

    Tax relief on pension contributions ensures that you are not in effect taxed twice.
     
  14. SueShell

    SueShell Registered User

    Sep 13, 2012
    403
    Orpington
    Not true! I only receive an occupational pension at the moment and am well under my personal allowance, so I am a non taxpayer at the moment. I don't get my state pension until next year. However, I have a silly little extra pension but still have to pay basic rate tax on that one. HMRC get you whichever way they can!
     
  15. jugglingmum

    jugglingmum Registered User

    Jan 5, 2014
    5,026
    Female
    Chester
    If both your pensions combined are under your personal allowance you should not be paying tax. the trouble is they normally only manage to give you allowances against one employment source. I know if its savings income you can get the tax back by completing HMRC form R40 - but don't know if this works for 2 separate pensions. Someone else might.
     
  16. nitram

    nitram Registered User

    Apr 6, 2011
    18,828
    Male
    North Manchester
    R40 is a claim form for repayment of tax on savings and investments but it does ask for income from pensions so it may work.

    If the occupational pension is less than your allowance I would query the code on the 'silly little extra pension'. It look as if it is BR and will be on the P60, it should reflect the allowance not used by the occupational pension.
     
  17. Pickles53

    Pickles53 Registered User

    Feb 25, 2014
    2,482
    Radcliffe on Trent
    I receive 2 small occupational pensions and a small annuity payment. HMRC allocate my personal allowance between them and sent me separate tax notifications for each one. The actual tax due is only deducted from one of the 3 as it takes my total income over the personal allowance threshold.
     

Share This Page

  1. This site uses cookies to help personalise content, tailor your experience and to keep you logged in if you register.
    By continuing to use this site, you are consenting to our use of cookies.
  1. This site uses cookies to help personalise content, tailor your experience and to keep you logged in if you register.
    By continuing to use this site, you are consenting to our use of cookies.