The UK Government has rejected calls for an end to income tax deductions on the State Pension. More than 19,800 people have signed an online petition created by Ray Crawford who argues that people like himself, are “penalised by the UK Government and HM Revenue and Customs (HMRC) by paying income tax on our State Pension because we have either workplace or private pension schemes to support us in later life”.
People on the full New State Pension currently receive £203.85 each week and those on the full Basic State Pension get £156.20. However, while the bumper uprating boost of 10.1 per cent over this financial year will undoubtedly help offset the ongoing cost of living crisis, it also means more older people may have to pay tax on their income.
This is because someone with 35 years’ worth of National Insurance contributions, on the full New State Pension will receive £815.40 every four-week pay period, giving them an annual income of £10,600.20 – leaving them just £1,969.80 of their annual Personal Allowance of £12,570.
In an official response to the proposal, the Treasury said: “Removing income tax from the State Pension would add complexity to the tax system and those paying higher rates of tax would receive the greatest benefit.
“Lower-earning individuals with income below the higher rate threshold would benefit less and those earning below the Personal Allowance would not benefit at all.”
It continued: “The [UK] Government is committed to ensuring that older people are able to live with the dignity and respect they deserve.
“Income earned through employment is taxable. In general, benefits that are designed to replace income are taxable and the same applies to income from the State Pension.”
Total income that counts towards £12,570 Personal Allowance:
- Basic State Pension
- New State Pension
- Additional State Pension
- Personal pension
- Workplace pension
- Any other income – such as money from investments, property, or savings
The Treasury’s response continued: “It is important to note that the Personal Allowance of £12,570 is currently set at a level high enough to ensure that those pensioners whose sole income is the New State Pension or Basic State Pension do not pay any income tax.
“The Government has nearly doubled the Personal Allowance since 2010 meaning around 30 per cent of individuals do not pay any tax. If the Personal Allowance had been uprated by inflation every year since 2010-11, it would be £9,655 in 2023-24, which is £2,915 lower than its current level of £12,570.”
It added that due to the “significant real term increases” to the Personal Allowance, it is estimated there will be over 3 million people taken out of tax by 2023-24, compared to the threshold rising in line with inflation from 2010-11.
The Treasury response concluded: “The Government keeps all aspects of the tax system under review and any decisions on future changes will be taken by the Chancellor in the context of the wider public finances.”
Latest State Pension News
The ‘Stop UK pensioners paying income tax on their State Pension’ petition and full Treasury response can be found on the official petitions-parliament website here.
At 100,000 signatures of support, the petition would be considered for debate in Parliament.
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