The Impact of State Pension Rise
The new tax year starts on 6th April 2023 and it coincides with an increase of 10.1% to the rate of the Basic State Pension for 2023/24.
The full rate of the State Pension paid weekly, if you are a man born on or after April 6th 1951, or a woman born on or after April 6th 1953, will be £203.85. An increase of £18.70 a week from £185.15
The basic rate of the State Pension paid weekly if you are a man born before April 6th, 1951, or a woman born before April 6th 1953, will be £156.20. An increase of £14.35 a week from £141.85.
While this will be a welcome boost to the 12.5 million pensioners living on a low fixed income and it remains below the threshold at which income tax is paid, it will lead to an increase in the number of over 65’s paying tax, many for the first time since they retired.
State Pension income is taxable but is paid without any tax being deducted. If it is your only income and the total you receive remains below £12,570 per year, or £241.73 per week, you will not need to pay tax on the state pension income.
However, the State Pension, uses up a large proportion of your tax-free personal allowance (PA), which is £12,570 in 2023/24, the same as it was in 2022/23. So if you are in receipt of an occupational pension or employment income, the state pension will use up more of the tax free allowance leaving less for your occupational pension and therefore more tax will be deducted from your occupational pension in 2023/24 than in 2022/23.
Looking at the New Basic State Pension the allowances are reduced as follows:
- 2022/23: PA £12,570 less State Pension 185.15 x 52 = £9,627, leaves 2,943 of allowances.
- 2023/24: PA £12,570 less State Pension 203.85 x 52 = £10,600, leaves 1,969 of allowances.
Tax codes will be landing on doormats in February and March so make sure you check that yours is correct.
Marriage Allowance (MA)
Those of you whose income remains below £12,570 may have claimed the Marriage Allowance (MA) and transferred £1,260 of your allowance to your spouse to reduce their tax. However, the large increase in your State Pension may take your income above £11,310 (£12,570 less £1,260 MA) and you may find yourself paying a small amount of tax. Even though both spouses are now paying tax, it may still be tax efficient for the household to keep the MA transfer in place.
Rise In Interest Rates
Along with the increase in the State Pension, the increased rates of interest paid on savings may cause tax issues also. This is another income that is often not taxed at source but is taxable. Often when your interest exceeds the savings allowance, any tax due is collected through your PAYE tax code. If the rise in interest rates has increased your savings income it may be that the adjustment on the PAYE code is not sufficient, or an adjustment may now be needed when it has not been in the past.
So please check you PAYE code when you receive it and be prepared!
If you are over 60, you can contact Tax Help for Older People by calling the helpline on 01308 488066. The helpline is open 9.00 am to 5.00 pm Monday to Friday. If the line is busy, or you want to call outside office hours, then please leave a message and an adviser will call you back. You can also email us at firstname.lastname@example.org
Alternatively, if you are under 60, you can contact TaxAid, on the helpline number 0345 120 3779, and again please leave a message if the line is busy. This helpline is also open 9.00 am to 5.00 pm Monday to Friday. If you would prefer to send an email enquiry, please send it to email@example.com
This article is by Tax Help for Older People Registered Charity no 1102276 (Scotland no SC045819), offering free tax advice to older people on a low income who cannot afford professional help.