Taxation on Pensions and Answers to Budget 2024 Queries

Trev from Eastbourne questions why his state pension increase results in income tax due to stagnant tax thresholds.

Kevin Peachey clarifies that the freeze has pulled many into the tax-paying bracket, with over 60% of retirees paying tax. The existing threshold is £12,570, but the Institute for Fiscal Studies (IFS) predicts pensioners will lose around £650 annually by 2027 due to the thresholds.

However, the government argues that pensioners have received additional support, such as cost-of-living payments.

Vaping Tax Postponement

Carrie inquires about the vaping tax delay until October 2026. Kevin Peachey explains that the tax, expected to generate significant revenue, will follow a consultation process. The delay exemplifies that not all budget measures commence immediately.

Child Benefit Thresholds

Ian asks if the child benefit threshold increase to £60,000 pertains to individual or joint parental income. Kevin Peachey confirms it applies to single earners, so two parents earning £59,000 each will maintain benefits, but a single earner above £60,000 will lose them gradually. A new system considering household income should come by April 2026.

Impact on Low Earners

Sue worries about why the lowest earners are at a disadvantage. Robert Cuffe points out that the freezing of tax thresholds hurts low earners particularly, with a slight offset from a National Insurance (NI) cut. Those earning modest salaries remain adversely affected, while higher earners benefit more overall from the NI reduction.

National Insurance Cut and Public Services

Len ponders the effect of NI rate cuts on health services and pensions. Dharshini David states that NI contributions feed into general funds, not specific services. Cuts do not affect individuals' access to health care or pension qualifications, as the health budget is safeguarded despite NI reductions.

Increases in Employment with NI Cut

Elizabeth A wants to know why a 2% NI cut predicts a rise in workers. Robert Cuffe explains this is due to the expectation that the cut will incentivize both additional hours worked and new job uptake, equating to around 200,000 full-time workers.

No Change to Personal Tax Allowance

David questions if the personal tax allowance will increase. Hannah Miller responds that the amount remains frozen at £12,570 until 2028, leading to more people paying tax as wages go up. This could result in 3.2 million new taxpayers by 2028.

Fate of State Pension with NI Changes

Elizabeth G asks about the state pension's future if NI disappears. Kevin Peachey reassures that NI abolition is not immediate. Current state pension qualification requires 10 to 35 years of NI contributions. If NI were abolished, a new system would emerge, possibly managed by HM Revenue and Customs.

Understanding Non-Dom Status

Robbie questions the meaning of non-dom. Hannah Miller defines it as someone whose permanent home is outside the UK for tax purposes. They only pay UK tax on income earned within the country. Post-Budget changes allow new UK residents four years before global income is taxed.

Calculating Personal Gain/Loss from Budget

An anonymous user inquires about how to evaluate personal budgetary effects. Robert Cuffe agrees that frozen tax thresholds should be seen as a cost, reducing real income despite salary rises due to tax obligations. Despite higher nominal pay, actual earnings don't keep pace with price increases, effectively leading to a tax hike.