Pensioners may receive Simple Assessment letters if they’ve gone above their personal allowance (Image: GETTY)
Pensioners may receive an unexpected HMRC letter after April this year. Not properly responding to this letter could result in penalties, visits from debt enforcement agents, or even court action.
The Office for Budget Responsibility estimates 600,000 pensioners will be liable to pay income tax in the 2026/2027 tax year, which starts on April 6. This is also when the full new state pension will increase to £12,547.60 per year, just £22 short of the personal allowance at £12,570.
The personal allowance threshold, which allows people to earn up to this amount each year without having to pay income tax, has been frozen for years while the state pension has steadily increased under the triple lock. This could see the state pension surpassing the personal allowance next year.
While Rachel Reeves has assured that people who only have the state pension as income won’t face tax bills next year, people with any income from private pensions or savings likely will have to pay income tax.
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For pensioners, this tax bill usually can’t be collected from the source like it is when you’re receiving working wages. Instead, HMRC will send out a Simple Assessment letter which may seemingly arrive out of the blue for anyone that is unaware of how their income measures up to their personal allowance.
This letter will detail how much you owe HMRC, how to pay your tab and the deadline by which you’ll need to pay. If you think something’s off in the calculations, you have 60 days to contact HMRC and dispute it.
If you can’t pay the bill in time it’s vital to talk to HMRC as soon as possible to set up a payment plan to pay in instalments. The department will ensure this plan is affordable for you but if you cannot agree on a payment plan you will need to pay the amount in full.
If you miss a payment without contacting HMRC, the department may send more letters or texts to get in contact. If you do not pay, a debt collection agency may be enlisted to collect the money.
If you still do not respond the Government may collect the outstanding money directly from your pension payments, savings accounts or by selling things you own. You could also be taken to court or be made bankrupt.
Government guidance notes: “HMRC will tell you before taking any of these actions and will explain your rights, costs and options.”
If you receive money from a private pension provider, they may take off any tax you owe before paying you and this can include taxes you own on your state pension income. If you have multiple providers HMRC may request one of them to take off the tax for your state pension.
If you’re working and getting a pension, your employer may take off the tax you owe from your earnings. Self-employed workers will need to include their state pension income on their Self Assessment tax returns and pay their tax through that system.
The Government provides an online tool where you can check if you have to pay tax on your pension but you’ll need to know exactly what type of income and how much you are expected to receive in this tax year.
People who have foreign income, marriage allowance or blind person’s allowance may not be able to use the tool as their tax calculations are worked out differently.