Money saving guru Martin Lewis has highlighted the frozen personal tax allowance threshold and told pensioners they could end up paying tax if they go over it. He was responding on his BBC podcast to a question from a worried state pensioner who asked it she was going to get taxed.
The reason someone on a state pension would get taxed is if their income goes over the personal tax allowance lowest threshold at £12,570. This has been frozen by successive govenrments since 2021 and has dragged millions of the poorest
people into paying tax on their earnings.
Chancellor Rachel Reeves has confirmed it will be frozen until at least 2028 and many have raised concerns this could be extended. People can earn £12,570 before they are taxed. Current state pensions amount to £11,973 per year – but on its own could cross that threshold next year if it rises in line with the triple lock system meaning all state pensioners would be taxed.
If they have any other income, for example from private pensions, they will be taxed at 20 per cent after the threshold. A massive campaign has been gathering support to raise the lowest income tax threshold from £12,570 to £20,000 with a petition on the parliament website getting 238,215 signatures so far. A date for a debate in the Commons has been set for May 12 which will put pressure on Ms Reeves to defend her position.
On the podcast Host Adrian Chiles said “Debbie has asked ‘When I get to state pension can I claim it and still continue to work.” Martin replied simple “Yes.”
Then Chiles added: “Bernice: Is a private pension taxed?” Martin said: “Private and state pension income is taxable. The only exception is when you take a private pension 25 per cent of it can be taken as a tax-free lump sum.
“How you get that 25 per cent is complicated. Many people get confused about this. They say ‘we’re about to be in a situation where state pensions will be taxed’. here’s no such thing as ‘will be taxed’ there’s are they taxable or are they not taxable.
“State pension income is taxable. But most people get a £12,570 personal allowance you can earn tax free and a state pension doesn’t hit to that. But if you have a state pension and other income it’s all added together and whatever you over £12,570 is taxed now.
“So state pension has always as far as I can remember been taxable and pension income barring the 25 per cent lump sum is taxable. The issue is many pensions who don’t earn over their tax free allowance.”
The petition created byA lan David Frost calls on the Chancellor to: ”Raise the income tax personal allowance from £12570 to £20000. We think this would help low earners to get off benefits and allow pensioners a decent income.
“We think it is abhorrent to tax pensioners on their state pension when it is over the personal allowance. We also think raising the personal allowance would lift many low earners out of benefits and inject more cash into the economy creating growth.”
To view the petition click here.
