HMRC will be targeting pensioners in new tax year – Time to take action!

April is the start of the new tax year (2024/25) and if there is one group of taxpayers that HMRC have their sights set on, it’s pensioners in receipt of the state and other pensions/investment income.

So, what’s the issue?

Back in tax year 2021/22 the then Chancellor (our old friend Rishi Sunak) decided to “freeze” the personal tax allowance at an amount of £12,570, the intention then was to just freeze the allowance for only a few years but given the unsurprising spend on COVID benefits, which now have to be paid for, we have ended up with an allowance now to be unchanged until 2027/28 (at the earliest !!), a total of 6 years with no increases to a tax allowance that previously was increased “year on year” in line with inflation.

Ok – but how will this impact me?

 At the same time as the freezing of the tax allowance the Conservative Party persisted with something called the “triple lock” on the amounts paid to pensioners via their state pension entitlements.

The effect of this is the “new” state pension (from April 2024) is now equal to approx. £11,500 meaning if you also have say, another small private pension (or bank interest/dividends above certain limits ) your total income is more than likely to exceed the £12,570 personal tax allowance !! As a result, you will have to start paying Income Tax for 2024/25 and may even be expected to file a Self Assessment Tax Return !

So, what should you do if you are likely to fall into this position?

I suggest the following:

1.Review your overall tax position including that of your spouse/civil partner –  some income producing investments can be transferred between the two of you to reduce Income Tax on your pensions;

2.Look to use tax protected investments like ISA’s where you can;

3.Interest rates on bank deposits are expected to fall in the medium term – the use of term deposits can secure higher rates currently available and defer Income Tax liabilities for up to 3 years;

4.With help from a qualified Financial Advisor there are opportunities to shelter cash funds (held with banks and building societies) into more Income Tax effective investments;

5.Make sure you claim for all your charitable donations using “Gift Aid”, the Income Tax benefits of this can be confusing but usually claiming this relief will have a positive impact on your overall Income Tax liability.

 

Nigel Shaw is a qualified Chartered Tax Advisor (CTA)  with over 30 years’ experience advising taxpayers on their personal tax situations, he can be contacted on: 01484 690730 or email info@langricks.com.