State pension nears taxable status due to triple lock hikes

Contributing sentiments towards policy:

67% : Dividend earnings outside the personal allowance are included for income tax purposes, but there is a dividend tax allowance of £500 for the 2025/26 tax year.
57% : Capital Gains Tax also increases from 18 per cent to 24 per cent on most assets.
56% : An additional allowance called the Personal Savings Allowance (PSA) means you can earn £1,000 interest on your savings if you are a basic rate tax payer even if this takes you above the personal allowance.
56% : For others, careful planning could help preserve allowances and reduce overall tax exposure.' Will the income tax allowance go up any time soon?
54% : Mr Greer says: 'For some, the benefits of additional income may outweigh the tax cost.
53% : With private or workplace pensions, you can usually take up to 25 per cent of the amount built up as a tax-free lump sum , up to £268,275.
53% : How will you be taxed if you exceed the limit, do you have to do a tax return?
53% : There will be no need to file a full Self Assessment tax return unless you have more complex income, for example if you have rental income, large dividends, or capital gains.
52% : How much would a pensioner who just exceeded the limit pay in income tax? Even a relatively small rise in the state pension in the 2027-28 and beyond could push those who get the full, new state pension over the income tax threshold.
52% : That can already push their state pension well above the personal allowance threshold, with some already having to pay an income tax bill.
52% : If a pensioner's total income is £12,571, they would pay 20 per cent tax on just £1, which equals £0.20.
52% : HMRC uses a system called Simple Assessment for pensioners with straightforward tax affairs.
52% : Additionally, higher-rate taxpayers can claim up to 40 per cent tax relief on pension contributions, which may help offset some of the impact.
51% : Work and private pension income, savings interest and dividends are also subject to income tax.
51% : For amounts between £12,571 to £50,270 the rate of income tax is 20 per cent.
51% : For amounts between £50,271 to £125,140 the rate of tax is 40 per cent while the additional rate of 45 per cent is payable for amounts over £125,140.
51% : You may not have to do a tax return if you go over the limit in the first instance.
51% : If your income exceeds the Personal Allowance and tax can't be collected via PAYE, HMRC will send a letter with the amount owed.
51% : For pensioners just above the basic-rate threshold of £12,570, the tax impact is relatively minor, as only the income above that level is taxed at 20 per cent.
50% : These changes mean that even a small step over the threshold can result in a disproportionately large tax increase across multiple income streams.'
50% : Holding investments in an Isa or pension can help shield income from tax.
49% : However, it also means retirees who rely solely on the state pension are being dragged ever closer to paying income tax, as the threshold for that is just £22.40 higher at £12,570. Many pensioners are already taxed With the state pension taking pensioners to the edge of being taxed, other income will take many above the £12,570 personal allowance.
49% : A pensioner who just exceeded their limit would pay tax on anything over £12,570.
49% : Is it worth slightly reducing your income to go back under the limit? Whether it's worth reducing your income to stay below the income tax threshold, or more significantly, the higher-rate threshold, depends on your overall financial position and how far over the line you are.
48% : If you are a higher rate tax payer this allowance is halved to £500 while additional rate taypayers have no PSA.
47% : In the last Autumn Budget in October 2024, the Government said the income tax allowance will be kept frozen at £12,570 until at least 2028.
45% : But with income tax thresholds frozen, the rise means that people who rely on the full, new state pension as their sole income just £22.40 under the threshold for paying income tax.
45% : The freeze on income tax thresholds have been in place since 2022 under the former Conservative Government.
42% : The UK income tax system is marginal, so only the amount above the Personal Allowance is taxed, at 20 per cent for income up to £50,270.

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