Upon reaching the age when you can claim your state pension, you will not have to pay any more National Insurance Contributions. However, you may have to pay income tax, depending on the level of your income. If you are taking in more than the personal allowance for the year, you will pay tax on any amount that isn’t covered by the tax free allowances.
Should you be paying income tax?
There are three steps to discovering whether or not you should be paying income tax. Initially, you will have to calculate your annual taxable income, which will include your state pension. You should then work out how many personal allowances you are due to receive for that year. Finally, subtract the allowances from your total taxable income and you will be left with the taxable amount.
Calculating taxable income
Any earnings from employment, state pension, interest from savings accounts, self employment income, dividends, foreign income, and some benefits all count as taxable income. Pension credit and benefits such as the Cold Weather Payments and Attendance Allowance are non-taxable. If you are married and the income is in joint names, only count half the income as yours. If you are in a civil partnership and the income is in joint names, again, only count half the income as being yours. Add up your total taxable income for the year.
Calculating your allowances
Anyone who was born after 6th April 1948 will receive the basic personal allowance of £10,000, unless income exceeds £100,000. If your date of birth is between 6th April 1938 and 5th April 1948, you will receive allowances of £10,500, although this will depend on your level of income. If your income exceeds £27,000, the allowances will be reduced by one pound for every two pounds over the limit. If you were born prior to 6th April 1938, you will receive allowances of £10,660 unless your income exceeds £27,000, in which case the allowances will be reduced.
There are other allowances and tax reliefs that can be claimed. The Blind Person’s Allowance is offered, for instance, to those certified as blind; it can be transferred if you won’t have to use it to cover your own income. If you were born before 1935 and are married, you can claim Married Couple’s Allowance.
Want to learn more?
Subscribe to our newsletter to get accounting tips like this right to your inbox
About The Author
We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!