Andy Burnham has been told that some state pensioners will miss out.
Andy Burnham has been warned over the tax giveaway (Image: Getty)
State pensioners are being warned they could face tax bills for the first time under new Prime Minister Andy Burnham next April.
The state pension has always been taxable income, but those who only receive state pension payments will not have exceeded the Personal Allowance threshold, which is still frozen at £12,570.
Next April, however, the triple lock is forecast to take state pension payments – for new, post-2016 state pensioners on a full National Insurance record – in excess of the £12,570 threshold for the first time.
While Mr Burnham has committed to keeping a tax exemption for state pensioners first announced by ex-Chancellor Rachel Reeves, there are complexities which may mean the exemption is lost and pensioners will owe tax.
Des Cooney, a retirement specialist from Axis Financial Consultants, told GB News: “With the full new state pension at £12,547.60 and the personal allowance frozen at £12,570 until at least 2028, the arithmetic is stark,” he warned.
He continued: “Anyone relying solely on the state pension should review whether they hold any additional income sources, even small occupational pensions or savings interest, that could tip them over the threshold once that gap closes.
“The practical step right now is to check your tax code and ensure HMRC has an accurate picture of all your income, so no unexpected bills are arriving after April.”
Mr Burnham and his new Chancellor, John Healey, have both promised to commit to the former Chancellor’s Income Tax protection for state pensioners.
Last year, she announced that state pensioners with no other income – such as savings, property income or private pensions – would not be made to pay tax on their state pension, even if they exceeded the £12,570 Personal Allowance threshold.
Mr Burnham has been warned about implementing the policy in his tenure by charity Independent Age, which said some problems “need to be addressed”.
Morgan Vine, director of policy and influencing at Independent Age, said that the exemption is “welcome” but “questions remain” about how it will be implemented, especially as those with small private pensions will still be “dragged into the tax system”.
She said: “Recommitting to exempting the State Pension from income tax is a welcome signal that the new Prime Minister is listening to the concerns of older people on low incomes. However, questions remain about how the policy will be implemented across a complex pensions system where one solution does not fit all.
“Different versions of the State Pension mean some older people receiving a lower State Pension and a small private pension would be dragged into the tax system, while others receiving only the State Pension will be exempt, despite the amount they receive being largely the same.
“Clearly, this is a situation that needs to be addressed so no older person on a low income loses out. Every day, we hear from older people with chronic money worries who are making difficult decisions to make ends meet, from rationing their energy and water use to skipping meals.
“We look forward to receiving clarity from the UK Government on how the State Pension tax exemption will work to protect all pensioners on low incomes.”
Before her departure as Chancellor, Rachel Reeves announced via the Martin Lewis Money Show Live on ITV1 that state pensioners who do not have any other income other than the state pension would not be made to pay income tax.
Initially, she had reported in her Budget speech to Parliament that pensioners would not be made to pay ‘small amounts of tax via self-assessment’, but the next day she clarified that this actually meant pensioners would pay no tax at all, much to Martin Lewis’ surprise, as long as they had no other income.
An HM Treasury spokesperson said: “Anyone whose only income is the full new or basic State Pension without any increments will not pay income tax and we are committed to that over this Parliament.
“By keeping the Triple Lock, 12 million pensioners will see their income rise by up to £470 this year, and they continue to benefit from the highest Personal Allowance in the G7.”