State benefits that are taxable

Many newly retired pensioners may not be aware that the State Pension they receive is taxable income. Also, the amount paid is not taxed at source. Although a pensioner’s State Pension may be covered by their annual tax-free personal allowance (£11,000 for 2016-17) and therefore potentially no tax would be payable, the situation is more complex if other private pensions and investment income are received. At the end of a tax year any tax collected by deduction from pensions may not be sufficient to clear liabilities.

The most common benefits that you pay Income Tax on are:

  • the State Pension
  • Jobseeker’s Allowance
  • Carer’s Allowance
  • Employment and Support Allowance (contribution based)
  • Incapacity Benefit (from the 29th week you get it)
  • Bereavement Allowance
  • pensions paid by the Industrial Death Benefit scheme
  • Widowed Parent’s Allowance
  • Widow’s pension

The most common state benefits you don’t have to pay Income Tax on are:

  • Housing Benefit
  • Employment and Support Allowance (income related)
  • Income Support – though you may have to pay tax on Income Support if you’re involved in a strike
  • Working Tax Credit
  • Child Tax Credit
  • Disability Living Allowance
  • Child Benefit (income based – use the Child Benefit tax calculator to see if you’ll have to pay tax)
  • Guardian’s Allowance
  • Attendance Allowance
  • Pension Credit
  • Winter Fuel Payments and Christmas Bonus
  • free TV licence for over-75s
  • lump-sum bereavement payments
  • Maternity Allowance
  • Industrial Injuries Benefit
  • Severe Disablement Allowance
  • Universal Credit
  • War Widow’s Pension
  • Young Person’s Bridging Allowance

If you do receive a bill at the end of the tax year make sure you check HMRC’s calculations, they have been known to get it wrong!

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