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State pensioners have been alerted to the possibility of receiving a new tax bill soon. As state pension rates rise, an increasing number of pensioners are becoming liable for income tax. The current personal allowance permits earnings up to £12,570 a year without incurring income tax, and this threshold is set to remain frozen until April 2028. The full new state pension currently stands at £230.25 per week, or £11,973 annually, which is just under £600 shy of crossing the threshold that would result in an income tax bill. Derence Lee, Chief Finance Officer at savings provider Shepherds Friendly, has warned that the increase in payments means more state pensioners are moving into the tax-paying bracket. State pension payments are adjusted each April in accordance with the triple lock, with payments set to rise by 4.8% next year. The triple lock guarantees that rates increase in line with the highest of 2.5%, the rise in average earnings, or inflation. Mr Lee stated: "Pensioners should begin to take into account that they may soon need to pay income tax on their pensions should no changes be made to current status-quo. Whilst the triple lock has been helpful in ensuring retirees' incomes keep up with the cost of living, taxing pensioners could have significant financial implications, particularly for those who rely heavily on their pensions to cover essential living costs and make ends meet." Mr Lee advised it's worthwhile preparing in advance as you might need to complete certain HMRC documentation if you begin paying income tax. He outlined: "Many pensioners may not need to fill in a tax return, because HMRC usually collects tax automatically through the PAYE system or sends a Simple Assessment bill showing the amount due. "However, if they have other income that isn't taxed at source, such as a private pension, rental income, or freelance earnings, they may need to complete a Self Assessment form or contact HMRC to adjust their tax code." He urged anyone with queries to telephone HMRC's tax helpline on 0300 200 3300. The tax specialist also mentioned that if you're entering a higher tax band as your earnings rise, it's beneficial to examine how this might impact your overall financial position. He stated: "It can be helpful to review all sources of income, including state and private pensions, part-time work, investments and savings, to ensure HMRC has accurate and up to date information." Additional guidance from Mr Lee included checking whether you qualify for any benefits, including Pension Credit. This state pension age benefit supplements your income to £227.10 weekly for individual claimants or £346.60 weekly for couples. You may receive extra amounts depending on your circumstances, such as if you provide care for another adult. State pensioners might also wish to verify their eligibility for the Winter Fuel Payment, given recent changes to the qualifying criteria. The majority of those at state pension age are eligible for this payment, which ranges from £100 to £300. However, if your annual income exceeds £35,000, you'll be required to repay the amount via HMRC.
