TENS of thousands of retirees are set to pay tax on their state pension for the first time next year.
It is expected that around 340,000 pensioners will be told that they need to pay tax when the state pension rises by £460 in 2025.
Letters from the taxman will land on doorsteps for the first time next April, when the new tax year starts.
This is due to the triple lock, which means the payment made to those aged 66 and over rises every April by the highest out of inflation, the average UK wage increase or 2.5%.
Wages rose by 4% between May and July this year and experts suggest this figure will be the deciding factor in how much the state pension will rise by next year.
With tax thresholds frozen until 2028, this increase will drag around 340,000 pensioners into paying tax for the first time, it has been warned.
This is because the total annual amount of income they receive will be more than their personal allowance.
The allowance is the amount of money you can earn before you have to pay tax on your income.
Under the current rules, this is up to £12,570 each tax year.
Over the next few weeks HM Revenue and Customs (HMRC) is writing to 560,000 customers as part of its “simple assessment” process, which will calculate who needs to pay what tax.
It was previously expected that around 140,000 pensioners would receive a letter for the first time this year.
But because of the suspected increase in the state pension, 340,000 people are now likely to get one.
Sir Steve Webb, the former pensions minister, told The Sun: “Whilst pensioners benefit from an above inflation increase in 2025, some of the increase will be clawed back through taxation for more and more pensioners.
“This comes on top of the loss of winter fuel payments for most. Taking account of rising energy bills on top of all these changes, by next April, not many pensioners will feel better off overall.”
Previously all pensioners received a Winter Fuel Payment of up to £300 each year to help cover the cost of energy bills.
But in July the government said that the payment, which is not taxable, would only be made to those on low incomes who claim certain benefits.
How does the state pension work?
AT the moment the current state pension is paid to both men and women from age 66 – but it’s due to rise to 67 by 2028 and 68 by 2046.
The state pension is a recurring payment from the government most Brits start getting when they reach State Pension age.
But not everyone gets the same amount, and you are awarded depending on your National Insurance record.
For most pensioners, it forms only part of their retirement income, as they could have other pots from a workplace pension, earning and savings.
The new state pension is based on people’s National Insurance records.
Workers must have 35 qualifying years of National Insurance to get the maximum amount of the new state pension.
You earn National Insurance qualifying years through work, or by getting credits, for instance when you are looking after children and claiming child benefit.
If you have gaps, you can top up your record by paying in voluntary National Insurance contributions.
To get the old, full basic state pension, you will need 30 years of contributions or credits.
You will need at least 10 years on your NI record to get any state pension.
These include Pension Credit, Universal Credit, income-related Employment and Support Allowance, income-based Jobseeker’s Allowance, Income Support, Child Tax Credit and Working Tax Credit.
To be eligible you needed to be receiving a benefit during the qualifying week of September 16-22.
Meanwhile, yesterday the energy price cap increased by 10%, adding £149 a year to the average household bill.
Between October 1 and December 31 the energy price cap is set at £1,717 for a typical household which has a dual fuel tariff and pays by direct debit.
The increase will pile further pressure onto pensioners who are struggling to make ends meet this winter.
How will the tax be paid?
HMRC has said that the letters it is sending to pensioners will include detailed calculations of any tax due on the income they receive in the 2023-24 tax year.
Pensioners will need to pay this tax through a Simple Assessment tax bill.
What is the Winter Fuel Payment?
Consumer reporter Sam Walker explains all you need to know about the payment.
The Winter Fuel Payment is an annual tax-free benefit designed to help cover the cost of heating through the colder months.
Most who are eligible receive the payment automatically.
Those who qualify are usually told via a letter sent in October or November each year.
If you do meet the criteria but don’t automatically get the Winter Fuel Payment, you will have to apply on the government’s website.
You’ll qualify for a Winter Fuel Payment this winter if:
- you were born on or before September 23, 1958
- you lived in the UK for at least one day during the week of September 16 to 22, 2024, known as the “qualifying week”
- you receive Pension Credit, Universal Credit, ESA, JSA, Income Support, Child Tax Credit or Working Tax Credit
If you did not live in the UK during the qualifying week, you might still get the payment if both the following apply:
- you live in Switzerland or a EEA country
- you have a “genuine and sufficient” link with the UK social security system, such as having lived or worked in the UK and having a family in the UK
But there are exclusions – you can’t get the payment if you live in Cyprus, France, Gibraltar, Greece, Malta, Portugal or Spain.
This is because the average winter temperature is higher than the warmest region of the UK.
You will also not qualify if you:
- are in hospital getting free treatment for more than a year
- need permission to enter the UK and your granted leave states that you can not claim public funds
- were in prison for the whole “qualifying week”
- lived in a care home for the whole time between 26 June to 24 September 2023, and got Pension Credit, Income Support, income-based Jobseeker’s Allowance or income-related Employment and Support Allowance
Payments are usually made between November and December, with some made up until the end of January the following year.
This can be paid online, by bank transfer or by cheque.
If you get a letter after October 31, 2024 for the last tax year you must pay it within three months of the date you received it.
There is also an option to pay in instalments, so long as you pay the full amount by the deadline.
There is an online guide to the Simple Assessment for pensioners which provides more information for those who receive a demand.
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