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Exact amount State Pensioners will have to pay in income tax after April rise


State Pensioners are looking likely to get a pension increase of up to £461 a year but it could pose an additional headache. For the rise could mean thousands of them will have to start paying income tax for the first time.

While the exact amount pensions will go up by has not yet been confirmed by the government under the “triple lock” guarantee it is predicted those on the new State Pension will get £8.80 a week extra.

Those receiving the lower old State Pension will get a smaller increase. However this could still rise by £353 a year or £6.78 a week.

However the increase for those on the higher level means they will be get £12,003.68 a year. This puts them very close to having to pay income tax even with only a tiny amount of additional income.

Liberal Democrat figures show 240,000 people will cross the personal allowance threshold next year making them liable for income tax. Sir Steve Webb, the former Liberal Democrats pensions minister said: “From next year, roughly three in four UK pensioners will have to pay income tax, and just over a third of a million will be dragged into the tax net for the first time since they retired.”

So how much would people have to pay? At present people can earn £12,570 without paying income tax.

Earnings – which includes pensions – over that will be taxed at 20% – up to earnings of £50,270 when this would jump to 40%. This would increase again to 45% for those earning more than £125,140.

This means if you have £1,000 of additional income over the tax-free limit you would have to pay £200 in tax. Those who work are likely to face much bigger bills – even working for a few hours on minimum wage.

A pensioner with a job on the current minimum wage of £11.44 working 10 hours a week earns £5,948.80 a year. For those on the higher New State Pension with most of the tax-free allowance gone this would mean paying tax on all but around £566 of their pay giving a tax bill of £1,076.50.

For those on the older State Pension – that is those who reached State Pension age before April 2016 -, they would have a higher amount of remaining tax-free allowance – £3,371.96. However they would still pay more than £515 of their income in tax.

Those with a private pension are also likely to be hit as any income from that will need to be added to the state pension along with any other earnings. They would then pay 20% of anything over the tax-free allowance.

The figures could change if the personal tax-free allowance is altered. Minimum wage is also set to rise which could make the bill bigger.



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