State pension warning as 400,000 retirees could receive unexpected tax bill

Hundreds of thousands of pensioners are at risk of receiving unexpected tax bills, according to new analysis.

A growing number of retirees are being dragged into paying income tax for the first time due to threshold freezes and state pension hikes.

But analysis by consultants LCP found hundreds of thousands have no other income apart from the state pension, such as a private pension, which can be used to collect tax owed.

They are set to receive a tax bill after the end of the year in which the pension is paid.

The research estimates some 400,000 pensioners could be in this position next year.

Sir Steve Webb, partner at LCP, warned they should consider putting money aside now for a future tax demand.

The former pensions minister said: “Millions of pensioners have been dragged into the tax net for the first time in recent years, primarily because of the multi-year freeze on tax thresholds.

“Many are now at risk of an unexpected letter from HMRC asking for tax they may not have realised was due.

“Any pensioner with a pension next year over ยฃ242 per week will have tax to pay, and if they do not have a private pension through which the tax can be collected, they may need to set some money aside for an unwelcome tax demand.”

The state pension is paid gross and any tax due can normally be collected on a private pension or earnings.

For pensioners with no other income, HMRC will use the “simple assessment” system to check if tax is owed based on information supplied by the Department for Work and Pensions.

If there is a tax bill, pensioners will be sent a letter after the end of the tax year requiring them to make a payment before January 31 the following year.

A Treasury spokesperson said: โ€œOur older population have the right to security and dignity in retirement which is why this year we provided the biggest ever cash increase to the state pension, a 10.1 percent rise, which comes on top of extra direct cash payments worth up to ยฃ1350 each to support with cost of living challenges and protection from rises in energy bills.

โ€œWe have taken three million people out of paying tax altogether since 2010 through raising the Personal Allowance, and the Chancellor has said he wants to lower the tax burden further but sound money must come first.โ€

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