A new online petition is calling on the UK Government to “introduce a Bill to remove income tax on the State Pension.” Ray Crawford 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”.
Basic and New State Pension payments increased in April by 10.1 per cent as part of the annual benefits uprating. People on the full New State Pension now receive £203.85 each week and those on the full Basic State Pension get £156.20.
However, while the increase 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 NI 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 - which leaves them just £1,969.80 of their annual Personal Allowance of £12,570.
The freezing of the Personal Allowance at £12,570 since 2021/2022 means that the State Pension payment has grown from 74 per cent of the allowance to 84 per cent for 2023/24, meaning pensioners will need just £1,969.80 of income before they start paying income tax.
The ‘Stop UK pensioners paying income tax on their State Pension’ petition, is hosted on the official petitions-parliament website, where Crawford states: “I would like the Government to introduce a Bill to remove income tax on the state pension.
“Most UK pensioners have worked for decades and most have paid their taxes to the Government of the day. Why in our latter years do we have to pay these taxes? We don’t pay National Insurance unless we continue to work.
“We are penalised by the Government and HMRC by paying income tax on our state pension because we have either workplace or private pension schemes to support us in later life. I would ask the Government to either scrap [or amend] the amount we pay.”
The petition will close on September 30, 2023. At 10,000 signatures the Uk Government will respond - follow it here.
State Pension and Income Tax
The MoneyHelper website explains that State Pension income is taxable but usually paid without any tax being deducted and reminds retirees that they no longer have to pay NI contributions after reaching State Pension age.
The amount of income tax you pay depends on your total annual income from all sources.
For example:
- earnings (including State Pension)
- profits from self-employment
- rental income
- other pensions you’re getting
- bank or building society interest
- income from your investments.
The guidance states: “You only pay Income Tax once your total annual income is above your Personal Allowance.
“If your total annual income is more than your Personal Allowance, you’re liable to pay Income Tax on the amount that exceeds the Personal Allowance.”
It adds that although tax isn’t deducted from the State Pension, it will therefore use up some of your tax-free personal allowance. Full guidance on State Pension and tax can be found on the MoneyHelper website here.
To keep up to date with the outcome of this petition, join our Money Saving Scotland Facebook page here, follow us on Twitter @Record_Money, or subscribe to our newsletter which goes out Monday to Friday - sign up here.
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