Concerns are mounting that more state pensioners will be forced to pay income tax due to the government's current tax allowance plan. Liberal Democrats call for action, while the government stands firm on its commitment to gradual tax threshold adjustments.
The government is facing calls to adjust tax allowance s to mitigate the risk of state pensioners becoming liable for income tax. Liberal Democrat MP Ben Maguire has urged Chancellor Rachel Reeves to consider raising the tax allowance for individuals over the state pension age to £15,000. Currently, the allowance remains at £12,570 until 2028/29.
Critics argue that the government's current plan will inadvertently result in more pensioners paying taxes as the state pension amount is nearing the tax allowance threshold. They warn that a slight increase in pension payments could push individuals over the limit, triggering tax liability. However, the government maintains its stance, with Treasury Minister James Murray stating that they are committed to keeping taxes low for pensioners while ensuring fiscal responsibility. He explained that the government will not extend the freeze on personal tax thresholds implemented by the previous administration but will instead allow them to rise with inflation from April 2028. Additionally, Murray highlighted the planned increase in the basic and new state pension by 4.1 percent from April 2025, which will provide an extra £470 annually for those receiving the full new state pension. The full New State Pension is currently valued at £11,502 in the 2024/25 tax year, rising to £11,973 in 2025/26. This means taxpayers close to the threshold will have limited room before crossing into taxable income levels. While individuals receiving the full New State Pension are exempt from income tax, those with additional income from employment, private, or workplace pensions may face tax obligations. Most pensioners will have tax automatically deducted through PAYE on employment and private pensions. Those without automatic deductions will receive a tax bill from HMRC the following summer, due by January of the next year. Experts predict that the number of pensioners paying tax will increase due to factors like auto-enrolment in workplaces, leading to higher retirement income. It's important to note that any tax paid in retirement is calculated based on the income earned above the threshold, not the total additional income. For instance, if someone earns £13,000 annually, they will pay tax on £430, the amount exceeding the £12,570 threshold. The Department for Work and Pensions (DWP) will soon release the complete list of updated state pension and benefit payments, including the full New State Pension and Basic State Pension rates, which have already been confirmed. The DWP will also announce the details of the additional elements that are set to increase by 1.7%. Individuals can use the online forecasting tool on GOV. UK to check their future state pension payments
STATE PENSION TAX ALLOWANCE INCOME TAX GOVERNMENT PLANS LIBERAL DEMOCRATS
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