HMRC has decided to let off potentially thousands of state pensioners from their tax bills, admitting that chasing them for “tiny” amounts just isn’t worth the hassle.
On the flip side, with income tax bands on ice until 2028 thanks to past Tory Government decisions, a hefty number of pensioners could be coughing up tax on their state pensions soon Labour’s stance on whether they’d keep the freeze is still up in the air.
Already this year, about 140,000 pensioners have been hit with a tax bill, and it looks like another 400,000 will feel the pinch. Labour is committed to keeping the Triple Lock, which could mean a 4.5% bump in state pensions next year.
And if pensions get a further 4.6% boost after that, we’re looking at a state pension of £12,572 a year by April 2026. That’s just over the frozen personal allowance threshold of £12,570, so hello tax on state pensions.
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The Telegraph reckons this would leave those relying on the state pension facing a measly 40p tax bill, reports the Express.
Department for Work and Pensions (DWP) stats reveal a whopping 1.7million individuals are getting by on just the state pension and benefits. Incredibly, the same number receive the full whack of the new state pension.
Under HMRC’s tax laws, the average PAYE taxpayer can tweak their tax code to match the tax they should be paying. But this move doesn’t work with the state pension because get this it’s not taxed right at the source.
That left the tax experts at HMRC potentially having to send out no-fuss assessment letters to collect what’s due. But the tax office has explained now it is not going to bother chasing pensioners for small amounts of money if their state pension goes over the allowance limit.
An HMRC spokesperson said: “No-one will have to file a tax return because an increase in state pension takes them over the Personal Allowance. The majority of PAYE customers will have any tax owed collected via their tax code. Those who are not in PAYE or Self Assessment will be issued a Simple Assessment letter, which will inform them of any tax they need to pay.”
Adding to the mix, the tax folks declared, “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.”
HMRC hasn’t yet explained what the cut-off point is for these taxes, saying it depends on the case and costs involved. Despite that, tax gurus, charities and pension aces are all asking HMRC for the key number or and some are saying the personal allowance threshold needs a rise.
Sir Steve Webb, ex-Lib Dem MP, slammed the taxman’s approach: “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.”