What is a State Pension?
State Pension is a weekly income which most people get from the UK government when they reach a state pension age provided that they have at least 10 qualifying years on their National Insurance record.
How much State Pension will I get?
The amount of state pension you get from the government depends on how many qualifying years you have on your national insurance record.You need at least 10 qualifying years to get the minimum or the basic state pension which is £141.85 per week.
The full new state pension in 2022/2023 is £185.15 per week which is (9627.80)
How much tax will I pay on my state pension?
State pension is treated as normal income and therefore it will be taxed in the same way as any other personal income.There is a personal allowance of £12 570 for the tax year 2022/2023 ,if your income falls within this limit you don't pay any taxes.
Please note that if you have dividends as your other source of income they are taxed a bit differently.
If state pension is your only income, usually you will not have to pay any taxes on it as it will fall within the annual personal allowance. However, if you have income from other sources for tax purposes you will add all the income including the state pension and pay income tax on it depending on which income threshold your income falls in.
For example,
Mr K receives a full new state pension which is £ 9627.80 he also receives income from renting an apartment which is £ 10 000. His total income will be £19,627.80. The tax free allowance is £ 12, 570 .The total taxable income would be £7,057.8 as this amount falls in the basic rate band
Mr K will be taxed at 20%
£
|
State Income
|
9627.80
|
|
Property Income
|
10 000
|
|
Total Income
|
19, 627.80
|
|
Personal Allowance
|
(12, 570)
|
|
Taxable income
|
7057.8
|
|
Tax rate
|
20%
|
|
Tax payable
|
1411.56
|
You do not pay national insurance when you reach state pension age unless you are self employed and paying class 4 national insurance.
How will deferring my state pension affect the taxes I pay ?
If you defer your state pension you might end up getting an increased amount of state pension and this could mean that you might have to pay taxes if it exceeds the annual allowance. You might want to defer your state pension if you are still working and you don't want to lose pension money in your taxes.
How will I be taxed if I am getting a private pension as well?
If you have a defined contribution pension pot you can take, usually the first quarter will be tax free but you will pay tax on the rest of it as normal earnings which will add to your state pension for tax purposes.
So take special care when you have state pension and private pension and calculate the taxes accordingly.
If you have any queries, please don't hesitate to callTaxaccolega to talk to our accountants and financial advisers who are experts in advising on your taxes.