Martin Lewis has issued a tax update to all state pensioners following the fallout from Chancellor Rachel Reeves’ seismic announcement.
The money expert interviewed the Chancellor the day after the Budget on a special episode of The Martin Lewis Money Show Live on ITV1, where she dropped a bombshell that state pensioners would be excluded from paying income tax on their state pension, as long as they had no other income.
A few days later, on Tuesday, December 2, Martin then returned with another episode of his long running money show where he was asked a follow up question by a state pensioner who wanted more information on how it would work and what counts as income.
One viewer, Kevin, wrote into the show to ask; “I’ve been trying to find out if a pensioner who receives a state pension and their other income is all tax-free, ie from ISAs or Premium Bonds, or under the savings allowance, will they have to pay more tax?”
Martin then replied: “It’s a really interesting question…ISAs are not taxable, so they won’t count, Premium Bonds are not taxable. Under your savings allowance is taxable earnings but you haven’t earned over the allowance so that’s a slightly different category because you’ve got taxable earnings.
“The honest answer is we don’t yet know how this will work.”
Martin then explained that the full new state pension must be increased each year by at least 2.5% thanks to the triple lock – and it’s often more than this, such as the 3.8% rise coming next April – while the income tax thresholds have been frozen for another three years.
It means many state pensioners would start owing a little bit of tax to HMRC as their income rises above the Personal Allowance threshold for the first time, particularly new state pensioners with a full National Insurance record.
Martin said: “My biggest concern was the admin. How are we going to have older people doing their self assessment forms when they’re 90 and they’re only earning £50 over the limit?
Martin Lewis played a clip in which he asked Rachel Reeves: “I’m gonna ask the edge case and I know it’s always difficult, someone who’s got a £50 a year private pension, on top of the state pension, they’re gonna have to pay tax I presume.”
Ms Reeves then told him: “I’m only making that commitment for people who just get the state pension, obviously a lot of people in retirement do um self-assessment and do pay tax on their income, and that’s not going to change, but I do recognise that those just in receipt of the basic state pension or the new state pension it wouldn’t be the right thing to do to try to tax those small amounts of money.”
Martin then told his studio audience, after playing them that clip from his interview with the Chancellor: “So it’s very interesting and it’s why I can’t quite answer Kevin’s question, because it isn’t fully formulated yet.
“But what I find interesting is imagine someone who’s a little bit off the full state pension, and then they had a very small private pension so they earned less than the full new state pension, under those rules, they would have to pay tax. And therefore they would be punished for having a private pension, which is why I think the thing isn’t fully thought through yet.”
The Martin Lewis Money Show Live December 2 episode is still available to watch via ITVX.
