If you have recently started to receive your State Pension, you may, or may not, have noticed that it is paid without deduction of tax. This can have a number of unforeseen tax consequences:
- If your total income including your State Pension is less than your personal tax allowance then there is no tax to pay and you can spend your pension, no problem.
- If you are still in business and self-employed, and if your self-employed earnings exceed your personal allowance, then you will need to save part of your State Pension to cover tax due. The amount you will need to put by depends on your marginal rate of tax.
- If you are employed, or if you receive private pension payments, HMRC may adjust your code number(s) to recover tax due on your State Pension. However, this process does not always recover the correct amount and you may receive a bill after the end of the tax year for any arrears. And occasionally, you may have overpaid and you will receive a rebate.
If you are concerned that you may be overpaying tax, or should be reserving for future tax and are unsure how much to put by, please contact us