Chancellor John Healey introduced a new tax allowance for pensioners in Wednesday’s Budget, designed to ensure that pensioners living only on the state pension are not dragged into tax.
According to Stefanie Tremain of leading tax advisory firm Blick Rothenberg, details published by the Treasury show the allowance is “designed to do exactly what it says on the tin and nothing more” – protecting pensioners whose only income is the state pension from paying income tax.
But what about pensioners whose partners have a separate income, or are only just above the tax allowance? Let’s take a look at how it works, who gains, who loses out and who will see little difference under the new system.
How all over 16s could need ID to use social media
Ofcom has set out its recommendations for the most effective ways to identify which of the UK’s millions of social media users are aged over 16.
What you need to know
Under the UK’s social media ban – which comes into force in March next year – under 16s will be prevented from accessing 10 of the biggest platforms, including Instagram and TikTok.
Many adults are also likely to have to confirm that they are not under-age by using one of the proposed measures,
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Ofcom’s recommendation
Age verification below 18 is difficult, because 16 and 17 year olds don’t have credit cards or full driving licences, and may not have passports.
To address that challenge, Ofcom has recommended four methods that it says would be “highly effective” at gauging people’s ages, in addition to traditional forms of ID.
The four methods
- Photo ID matching, where relevant information on a photo ID is checked against a live image.
- Banking-based checks – using the information on record regarding a user’s age.
- Face age estimation technology, which Ofcom argues has recently improved.
- Digital ID services, which enable people to digitally prove who they are or provide information about themselves, such as their age.
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Why Toblerone owner is suing vegan chocolate brand
The owner of Toblerone is taking legal action against a small British vegan chocolate brand which it claims has been copying the Swiss chocolate bar’s iconic shape.
What you need to know
- Mondelēz has filed papers at the high court accusing Catherine’s Original’s of “passing off” and trademark infringement with its O’bar.
- The O’bar is a length of chocolate divided into segments each with a rounded semi-oval hump.
Catherine’s Originals, founded by Catherine Dodd in 2021, makes its chocolate in Sussex and sells them via markets and online.
- Mondelēz International said: “The iconic Toblerone shape is one of the most recognised and distinctive product designs in the UK and across the world, and has been a hallmark of the brand since 1929.
- “We have a responsibility to protect our trademarks and intellectual property, which we take seriously.”
- The legal battle comes after Poundland was forced to delay the launch of its Twin Peaks bar in 2017 after a legal warning from Mondelēz.
What O’bar founder has said
We stand firmly behind the product and identity we’ve created. We strongly disagree with the claim concerning O’bar and are working with our legal team to defend our position. Honestly, it’s fairly frightening for a small business we’ve put so much care and hard work into building.
catherine dodd
The tax rises Healey didn’t tell you about
In John Healey’s Budget he promised to make Britain “more resilient” to global shocks and pledged to give families a £100m payment to help with energy costs, and offer a tax break for low income pensioners.
But the Office for Budget Responsibility (OBR) has warned living standards will be challenged by higher energy costs and a ballooning tax burden. Here are all the hidden tax rises in Wednesday’s Budget.
Energy bills
The Chancellor announced a series of pledges to curb rising energy costs, promising the beginning of “radical reform”.
This includes a £100 payment towards energy costs for up to 20 million households in council tax bands A to D.
However, these fixed daily charges on gas bills will be shifted onto the price consumers pay for each unit of energy.
Energy bills
The Treasury has claimed that 60 per cent of households will save an average of £45 a year.
But the savings will only come after the big projected rise to energy bills in January. While lower users will gain the most, higher users – which includes large, low-income families – are likely to pay more than they currently do.
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High tax bands for millions
- Millions face being dragged into paying more income tax after the thresholds remained frozen.
- The IFS warned it was a Budget with “very little that will move the dial on growth”.
The effect, known as fiscal drag, occurs when tax thresholds remain frozen while wages rise – meaning people pay more tax as a greater proportion of their income becomes taxable or they are pushed into higher tax bands.
Middle-income pensioners
- Pensioners with income less than the full amount of the new state pension will not have to pay income tax, Healey announced.
- However, middle and higher income pensioners face a squeeze due to related tax rules.
- Healey said that to avoid a “cliff edge” once a pension income exceeds the allowance, the Government would “gradually” reduce the allowance as income increases.
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Middle-income pensioners
- The Government said this means those earning between £13,037 and £13,319 will receive “some Pension Tax Allowance and pay less income tax than you otherwise would”.
- But Sir Steve Webb, former pensions minister, said this means around 200,000 low-income pensioners will face a marginal income tax rate of 53 per cent.
- For each extra pound above the cut-off, they pay 20p in income tax and lose 33p in the tax rebate that those on lower incomes get, he said.
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Higher housing costs
The Chancellor announced that the surcharge on bank profits would be temporarily doubled from 3 to 6 per cent and that landlords face a 4 per cent tax on rental profits and property income.
But critics are warning higher costs will be passed onto renters and onto people securing mortgages.
John denies postponing difficult welfare system decisions
John Healey has denied postponing difficult decisions on the welfare system, insisting the Government is making changes “now”.
The Chancellor’s Budget has faced criticism for not dealing with the ballooning cost of welfare, including from Kemi Badenoch, who said the country is “drowning in an out-of-control welfare system”.
What you need to know
- The influential Institute for Fiscal Studies think-tank warned the Budget delayed tough decisions.
- Speaking to , Healey said ministers have already brought in a range of measures to cut the cost.
- The Chancellor told BBC Radio 4’s that the Government “can never remove completely the cost of living pressures that people feel”.
Two years ago we started putting back in place face-to-face assessments. We’ve changed terms of universal credit, so people don’t have to brand themselves as too sick to work. So, those are changes we’re making now. But in the long run, as I’ve argued, and the Prime Minister has said, too, we have to bring the cost of down.
healey told gb news
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How much benefit payments will rise by
Benefit claimants will see their payments boosted next year in a move that could cost the Government up to £5.5bn, according to the Institute for Fiscal Studies (IFS).
Some 10 million Britons claiming working-age benefits are set to see a rise of at least 3.5 per cent from next spring, with ministers expected to increase rates in line with inflation.
What to know as ‘error’ blamed for Spain train crash
At least 68 people died and dozens more were injured following a “rear-end collision” between two trains in central Spain.
What happened?
The crash occurred between the towns of Los Yébenes and Urda, in the Toledo province, shortly before 9am local time (8am UK time) on Wednesday.
- A train operated by the state-owned national rail company Renfe carrying 397 passengers, rammed into the back of a stationary train operated by private firm Iryo, carrying 147 people.
- The crash caused at least two carriages to fall down an embankment.
- Former Spanish government minister, Fátima Báñez, was among those killed in the incident, local authorities confirmed.
- Three days of national mourning have now been declared to honour the victims.
What caused the crash?
Spain’s Transport minister Óscar Puente said a computer failure led to the initial halt of six moving trains.
Puente also suggested that the accident may have been caused by human error because one of the trains had been told to resume its journey. He said it was the control centre, through its operators, that made the decision to resume traffic which he said was “inexplicable”.
The story in pictures
What has Spain’s PM said?
The whole of Spain is grieving. Lives have been shattered, families have been torn apart, the pain is immense.
Pedro Sanchez
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Why train crashes are more common in Spain
Earlier this year, a collision between two high-speed trains in southern Spain killed 39 people. But what does the data on Spain’s train crashes say, and which are the safest European railways?
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Hayden Panettiere’s death ruled accidental
Police have closed the investigation into Hayden Panettiere’s death after a post-mortem found .
The actress died in August after being found unresponsive in an apartment in the South Carolina city of Greenville.
No signs of foul play
Panettiere’s on-and-off boyfriend Brian Hickerson and his brother Zach were in the property at the time. Paramedics performed CPR and other resuscitation efforts for 40 minutes before declaring her dead.
Officers initially said there did not appear to be any signs of foul play – an assessment backed up by last month’s post-mortem.
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Cause of death revealed
The coroner ruled Panettiere died from the toxic effects of an accidental overdose of several drugs, including the synthetic opioid fentanyl.
The other drugs found in her system were anti-anxiety medicine alprazolam, muscle relaxer methocarbamol, and quetiapine – which can be used to treat depression.
Panettiere had been in rehab a few weeks before death.
A quick guide to this year’s Budget
This is a Budget for the working people.
Chancellor John Healey unveiled the long-anticipated Budget yesterday, the first for Prime Minister Andy Burnham. Healey called it a Budget “for the working people” as he announced details.
So what are the key takeaways?
Cheaper energy
- This winter, 20 million households in council tax bands A to D will receive a £100 energy payment paid directly into people’s bank accounts – a £2.6bn scheme.
- Gas standing charges will be removed from next year, and similar reforms will follow for electricity.
- The Chancellor says he will remove some levies on energy bills.
- He also extended a VAT cut on electricity to July 2027, cutting £50 off the annual price cap.
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Savings and pensions
- The tax-free limit on cash ISAs will stay at £20,000, abandoning plans to reduce it to £12,000.
- “To make the investment more accessible, I will work with the sector to create a new starter ISA to reward first-time investors,” Healey said.
A new pension tax allowance will be introduced. “Pensioners with income up to the value of the full new state pension will not pay income tax in this parliament,” Healey said.
Benefits and paternity leave
- A benefits rule that punished unpaid carers for earning too much is being abolished. Now, if they earn any amount above the threshold set by means-testing (£204 a week), they lose the whole carer’s allowance.
- This will be replaced, Healey announced.
- Self-employed dads and same-sex partners will also be eligible for two weeks’ support worth up to £194 a week.
3.9%
The Chancellor announced a rise in the minimum wage by nearly 3.9 per cent, the same rate for workers aged 18 to 20 years old and those aged 21 and over.
The Chancellor promises to reform non-compete clauses in contracts.
- Healey also said he will extend the fuel duty cut until July 2027.
- Workers using their car to get to work can be reimbursed a greater amount by their employers tax-free – the higher mileage rate will increase from 25p to 35p per mile.
The threshold for small business rate relief will increase from £12,000 to £18,000 for retail, hospitality and leisure.
Healey will also raise taxes on the gambling industry to pay for the changes. A £10m alcohol duty relief will be provided for around 2,000 small British brewers and cider makers.
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How does it work?
From next April, the full new state pension rises to £13,036 a year.
That takes it above the personal allowance, the amount you can earn before paying income tax, which has been frozen at £12,570 since 2021.
“A key point is that although it is being called an allowance, this is a tax reduction, not an extra allowance,” Tremain said.
Rather than raising the amount you can earn tax-free, it knocks up to £94 off your income tax bill once that bill has been worked out. But with the tax allowance frozen until 2031, this figure will rise each year.
For anyone with income above the £13,036 full state pension, the reduction is gradually withdrawn.
They lose £1 of it for every £3 of extra income, so the £94 is used up completely by the time their income reaches £13,319.
Tremain said this “does not work in the same way as the tapering to the main personal allowance”, which only affects people earning more than £100,000.
What is still unclear?
Tremain said: “It’s also not clear how the [pensions tax allowance] will interact with other tax allowances such as the trading allowance and the savings allowance.”
The Government’s factsheet suggests the new allowance will apply to total income – all your taxable income added together – which is normally calculated after those allowances are deducted.
If the pensions tax allowance is meant to apply first, she warned, “this would alter the existing ordering rules and will probably lead to some incorrect tax bills, particularly given HMRC’s previous difficulties with the interaction of the personal savings allowance and dividend allowance”.
Who gains?
According to Tremain, two groups of pensioners stand to benefit.
State pensioner living alone with no other income: If the state pension is your only income, you should pay no tax on it, saving up to £94 a year.
Tremain said that “perhaps most importantly, there should be no requirement to interact with HMRC”.
State pensioner with no other income, living with a partner with income over the basic rate band: A partner above the basic rate band is a higher rate taxpayer.
Tremain said “overall the household would be better off by up to £94”, because eligibility depends only on the pensioner’s own income.
“The Treasury could have considered trying to factor in household income, as with the [high income child benefit charge] and the fact they have not is a welcome simplified approach,” she said.
Who loses?
Pensioners with other income on top of the state pension are the ones who could miss out.
State pensioner with investment income and other private pension income: If your total income is above £13,319, you will lose the allowance in full, and start to pay tax at the £12,570 threshold.
Tremain said the new allowance “is intended to ensure that pensioners on the lowest income do not pay tax on their state pension income, rather than exempting the state pension from tax altogether”, which “arguably would have been more straightforward”.
Those just below the cut-off face a tax trap because of the way the reduction is withdrawn.
Writing for The i Paper, former pensions minister Steve Webb, now a partner at consultancy LCP, said around 200,000 pensioners would fall within this band.
For each extra pound they receive, they pay 20p in income tax and lose 33p of the reduction – a marginal tax rate of 53 per cent.
The highest earners outside Scotland pay 45 per cent on each extra pound, which led Webb to write: “This does seem rather harsh.”
State pensioner with investment income (within savings allowance; and over savings allowance): “It’s currently unknown how the [pensions tax allowance] will interact with the savings allowance,” Tremain said.
If the £1,000 savings allowance for basic rate taxpayers is applied first, she said “pensioners with modest savings income of up to £1,000 could still benefit”.
But if the new allowance comes first, those whose interest pushes their income above £13,319 “could find themselves losing their pension-related tax reducer”.
Who will see no change?
For some couples, the new rules are unlikely to make much difference.
State pensioner with no other income, living with a partner with income below the basic rate band: Where the lower earner’s state pension is below the personal allowance, they can still use the marriage allowance to transfer up to 10 per cent of it to a spouse or civil partner who is a basic rate taxpayer.
Tremain said that “there appears to be no option to transfer any unused [pension tax allowance], as a household they should be no worse off”.