Martin Lewis has issued a warning to state pensioners about tax after revealing that they do already need to pay HMRC tax for their earnings.
The Money Saving Expert founder returned for a Christmas special of The Martin Lewis Money Show Live on Tuesday, November 18 on ITV1 and ITVX where he took viewers through a host of festive savings tips plus the best Black Friday and Christmas shopping deals.
Martin heard from a woman who had a question for Martin about paying tax on her state pension.
She asked, in a question read aloud by co-presenter Jeanette Kwayke: “I’m 67, a pensioner, and like many pensioners I find the cost of living so high, I need to get a part-time job. What are the tax implications?
“Even though my state pension is less than £12,000 a year, would I still pay tax on it, especially with the budget coming?”
Martin warned her: “Look, let’s be clear. The state pension is taxable income and has always been taxable income.”
He then explained how the system works, and stressed that even though the state pension itself is due to cross the Personal Allowance threshold soon, it is always worth working even if you would owe more tax.
He added: “But most people can earn £12,570 a year without paying tax. The current full new state pension, and you’re 67 so you’re on the new state pension, if you get the full amount is £11,900, the tax threshold is here, so if you only get the full state pension, you don’t pay any tax.
“It’s going to go up in April to just below that tax threshold, at £12,500, you still won’t pay tax if you only get the state pension.
“The following year, because the thresholds are frozen, and that freeze I’m afraid is likely to be extended for another couple of years, then it will probably be the first time that someone on the full new state pension will pay tax on that income even if they don’t earn anything else.
“Now you’re asking me about working, I think the very likelihood is, if you’re doing any form of work you’re going to go over that personal allowance and you will pay tax on your total income, your state pension plus other earnings.
“But let’s just be really plain. You don’t pay tax on the whole of that, you only pay tax on the amount above the Personal Allowance. £12,570. So let’s say your total earnings are £15,000, you pay 20% tax on that, 20% tax on £2,500 is £500, so for that extra work you do, you earn £2,500 and you take home roughly £2,000.
“The big message, whether you’re 67 or just leaving school…the more you earn, the more you take home.
“Yes tax comes off, but it’s never worth not working because of tax and thinking that I’ll earn less because of tax. You won’t, you’ll always earn more the more you get paid. So if you need more money, you have to pay some tax, but at least you’ll take home more.”
The Martin Lewis Money Show Live November 19 episode is still available to watch via catch-up service ITVX.
