Pension warning as millions face HMRC tax bill they did not know was owed

Millions of pensioners are being warned to check if they owe tax to HM Revenue & Customs (HMRC). The number of pensioners liable for tax has doubled from 4.5million in 2010 to more than nine million.

The state pension is rising to £11,502 a year from this month – just £1,068 below the personal allowance of £12,570. It means more pensioners will have to start paying tax on their pensions.

In a column for the Yorkshire Post, former Pensions Minister Ros Altmann said the new full state pension was now 92 per cent of the way towards the personal tax threshold. The basic state pension has risen to £8,814 a year – 70 per cent towards the threshold.

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But she warned millions of older pensioners also received additional state pension payments such as the State Earnings-Related Pension (Serps), State Second Pension (S2P), Protected Rights and Guaranteed Minimum Pensions. This means even a small amount of extra income from other pensions or savings could tip someone into tax liabilities, Mirror reports.

Ms Altmann raised concerns pensioners did not know they needed to pay taxes, particularly if they had never been liable before. She warned pensioners who were married or in civil partnerships and gave part of their personal allowance to their partner with ‘marriage allowance’ had an even lower personal allowance of just £11,310.

The former pensions minister said this would cause huge ‘distress’ to pensioners. She called on the HMRC and the Department for Work and Pensions (DWP) to notify pensioners of the risks.

She added: “More are now at risk of being hit with fines and penalties for not paying a tiny amount of tax they never knew was due. Most of those tipped into tax will be poorer pensioners with little more than their state pension to live on.”

The annual tax deadline is on January 31. You face an automatic late penalty of £100, which rises to £10 a day after three months if you do not pay.

After six months the penalty increases to five per cent of the tax owed or £300 – whichever is higher. Ms Altmann called on the Government to raise the personal allowance in line with inflation.

She said the Government should be warning pensioners ‘clearly’ of the potential tax liabilities they could face when claiming. She said: “The DWP should send out clear notification to everyone receiving State Pension notification letters, warning them that they should check their tax position and DWP/HMRC should consider national advertising and a media campaign.”

The former pensions minister said that HMRC should also ensure it has sufficient helpline capacity to cope with queries. She added: “Often the elderly have no digital access and cannot use online services easily.

“HMRC should also look into a dedicated helpline for older people.” She also wants a ‘proper liaison’ between HMRC and the DWP so pensioners can get a notification of any unexpected tax liability they may face.

The tax system was already ‘far too complicated’ and too many confused pensioners are at risk being punished rather than supported, she said. She added: “Careful reform could alleviate some of the social problems, either by better liaison between HMRC and other Government Departments but also by ensuring that people can pay any tax due easily and that they know what their responsibilities will be. Currently, this is not happening.”