'HMRC takes £46 from my pension each month - is my Attendance Allowance tax-free?' Jasmine Birtles replies

Jasmine Birtles in pictures beside pension folder

Jasmine Birtles is answering pensions and retirement questions in an exclusive Q&A for GB News members

Jasmine Birtles

By Jasmine Birtles

Published: 30/04/2024

- 04:00

Jasmine Birtles looks at tax on pensions and other state pension age income in an exclusive pensions and retirement Q&A for GBN members

In an exclusive Q&A for GB News members, money expert Jasmine Birtles answers your pensions and retirement questions. Have you got a question? Get in touch by emailing money@gbnews.uk.

Question: "I have a state pension which currently yields £1,116.56 every 28 days and a private pension which used to yield £120.00 per month but after tax, now only yields £73.68.

"Because of my circumstances and age - I'm 79 - I also receive Housing Benefit of £166.74 twice a month plus the higher rate of Attendance Allowance [worth £434.20 a month].

"Will these benefits be included when HMRC calculates my tax-free allowance?"

Jasmine replies: First things first, it’s important to revisit the tax-free personal allowance and what this applies to.

This is essentially the amount of income you do not have to pay tax on, and the standard personal allowance is £12,570 per tax year.

Generally speaking, income above your personal allowance is subject to tax.

This is why we pay tax on money we make from employment that is greater than the personal allowance, and the same goes for pension income, as well as profits if you’re self-employed.

However, not all income is liable to tax and this includes some state benefits.

Fortunately for your situation, Housing Benefit and Attendance Allowance are tax-free benefits therefore these income payments do not enter the calculation.

Do you have a money question you'd like Jasmine to answer? Email money@gbnews.uk.

Alice Guy, head of pensions and savings at interactive investor, adds:“It’s tough for pensioners on a low income because they must pay income tax on any pension income over £12,570, including the state pension and any private pension income.

"And the bad news is tax levels are expected to rise over time as the personal allowance will be frozen at £12,570 until 2028.

"This means that more tax will be payable as the state pension rises with the triple lock over time, but the personal allowance stays the same.

“The good news is that many benefits, like Housing Benefit and Attendance Allowance, aren’t taxable, so pensioners with these benefits can keep all their additional benefit income.

"Double check the rules online as some benefits are taxable. Most pensioners also don’t need to pay national insurance, so have a lower tax rate than those who are working age.”

Many state benefits are tax-free and some of these can be particularly relevant to pensioners, such as the severe disablement allowance, lump-sum bereavement payments and disability living allowance (or DLA).


Pensioner looks at tax bill

A pensioner has asked if his Housing Benefit and Attendance Allowance will be included in his tax-free allowance


You can find the full list here on the government website, which also crucially details which state benefits ARE taxable (such as bereavement allowance and the state pension).

Like many state benefits, Housing Benefit and Attendance Allowance are automatically tax-free. This means you don’t need to file any extra paperwork with HMRC.

If you do run into any problems however, then the Citizens Advice Bureau are really knowledgeable and helpful in advising on issues linked to benefits.

Based on the state benefits you are already accessing, you only need to worry about the tax liable on the income from your state pension and your private pension.

Jasmine Birtles is founder of the money and investment site MoneyMagpie.com.

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