Many newly retired pensioners may not be aware that the State Pension they receive is taxable income. Also, the amount paid is not taxed at source. Although a pensioner’s State Pension may be covered by their annual tax-free personal allowance (£11,000 for 2016-17) and therefore potentially no tax would be payable, the situation is more complex if other private pensions and investment income are received. At the end of a tax year any tax collected by deduction from pensions may not be sufficient to clear liabilities.
The most common benefits that you pay Income Tax on are:
- the State Pension
- Jobseeker’s Allowance
- Carer’s Allowance
- Employment and Support Allowance (contribution based)
- Incapacity Benefit (from the 29th week you get it)
- Bereavement Allowance
- pensions paid by the Industrial Death Benefit scheme
- Widowed Parent’s Allowance
- Widow’s pension
The most common state benefits you don’t have to pay Income Tax on are:
- Housing Benefit
- Employment and Support Allowance (income related)
- Income Support - though you may have to pay tax on Income Support if you’re involved in a strike
- Working Tax Credit
- Child Tax Credit
- Disability Living Allowance
- Child Benefit (income based - use the Child Benefit tax calculator to see if you’ll have to pay tax)
- Guardian’s Allowance
- Attendance Allowance
- Pension Credit
- Winter Fuel Payments and Christmas Bonus
- free TV licence for over-75s
- lump-sum bereavement payments
- Maternity Allowance
- Industrial Injuries Benefit
- Severe Disablement Allowance
- Universal Credit
- War Widow’s Pension
- Young Person’s Bridging Allowance
If you do receive a bill at the end of the tax year make sure you check HMRC’s calculations, they have been known to get it wrong!
