COVENTRY MESSAGE BOARD

More people will have to pay back part of their state pension



Hundreds of thousands of retirees are at risk of an unexpected income tax bill, as the Government prepares to boost state pension payments by at least 7.8pc in the spring.

Such a large increase in the state pension combined with frozen tax thresholds means pensioners are increasingly at risk of falling into the tax net.

The personal allowance for income tax has been frozen at £12,570 since the 2021/22 tax year. This means that anyone with a state pension over £242 per week would owe some income tax, according to analysis by consultancy LCP.

While some pensioners have private pots that can be used to collect tax, there are approximately 400,000 pensioners who have no other source of income than the state pension.

In this case, the taxman could wait until after the end of the tax year to inform them they must make a payment before January 31 the following year.

Sir Steve Webb, a former pensions minister and partner at LCP, said this could leave hundreds of thousands of people unaware of an incoming tax bill.

He said: “Many are now at risk of an unexpected letter from HMRC asking for tax they may not have realised was due.

“Any pensioner with a pension next year over £242 per week will have tax to pay, and if they do not have a private pension through which the tax can be collected, they may need to set some money aside for an unwelcome tax demand.”

A Treasury spokesman said: “Our older population have the right to security and dignity in retirement which is why this year we provided the biggest ever cash increase to the state pension, a 10.1pc rise, which comes on top of extra direct cash payments worth up to £1350 each to support with cost of living challenges and protection from rises in energy bills.

“We have taken three million people out of paying tax altogether since 2010 through raising the Personal Allowance, and the Chancellor has said he wants to lower the tax burden further but sound money must come first.”

State pensioners’ tax bills to be written off by HMRC



HM Revenue & Customs (HMRC) is to write off tax bills for some state pensioners hit by the Government’s frozen thresholds, The Telegraph can reveal.

Hundreds of thousands of retirees are set to be dragged into paying tax on the state pension in coming years because of frozen income tax thresholds.

However, the tax office has said it will not send demands to those who owe “tiny” amounts of tax because it’s too expensive to collect.

Around 140,000 pensioners have already received a tax demand this year. Up to 400,000 could also be dragged into paying tax based on current forecasts.

The triple lock increase is estimated to be 4.5pc next year, and if it reaches even 4.6pc the year after, it would push the state pension to £12,572 in April 2026 – above the personal allowance, which is frozen at £12,570 until 2028.

This would make the state pension taxable, handing someone who lives on just the Government income a tax bill of 40p. If the triple lock is higher and pensions rise more quickly, the bill would increase.

However, the tax office said it will “not pursue hundreds of thousands of pensioners for tiny amounts of tax” if the state pension exceeds the allowance.

A spokesman said: “We will not normally issue simple assessments for tax that would cost more to collect than is owed. That would not be a good use of public funds.”

When asked about the amount below which tax is written off, known as a de minimis, HMRC said there was no set level and that it varied according to the circumstances and administrative costs involved.

However, accountancy experts were quick to cast doubt on the veracity of the claim. One former HMRC tax adviser told The Telegraph the limit was previously set at £50.

Dominic Arnold, of wealth manager Evelyn Partners and ex-HMRC employee, said: “Any suggestion that HMRC does not apply de minimis limits to collecting or repaying tax would be contrary to its own guidance that instructs its staff to consider ‘tolerances’ when looking at small underpayments or overpayments of tax.

“Whilst HMRC does not publish what these tolerances are, in the past they have been £9.99 for overpayments and £49.99 for underpayments. HMRC also has standing guidance to its staff to consider writing off small amounts of unpaid tax, although again the amounts are not published.”

Stuart Ritchie, a committee chair at the Institute of Chartered Accountants, added: “There is a limit. It’s not publicised. It’s around £100 based on my experience as an accountant of 30 years. I was aware of a case where there was a very strange message on the HMRC service saying “amount not to be collected” and it was around £100.”

Sir Steve Webb, a former Lib Dem MP and pensions minister, urged HMRC to give more clarity.

He said: “In some cases, these demands could be for just a few pounds or even pence, and HMRC needs to be clear at what point it decides sending such letters is a poor use of taxpayers’ money. It is hard to believe that collecting relatively small sums from hundreds of thousands of pensioners in this way is a sensible system.”