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Pensioners paying £3,500/year in income tax

If you think you´ll stop paying tax when you retire, think again.

A freedom of information (FOI) request by Royal London has revealed that pensioners across the UK paid more than £24bn in income tax in 2015/16 — the latest year for which detailed figures are available.

Amongst the 6.87 million pensioners still paying income tax, the average annual tax bill is £3,522. Pensioners in Surrey pay the most, with a total tax bill of £961m, which means they are paying more in income tax than the entire retired population of Wales.

More than a quarter of taxpaying pensioners are still in paid work — 1.5 million have employment income and 0.5 million have income from self-employment.

Reporting on the findings, the Daily Mirror said that if you´re planning to continue working, it may be worth deferring your state pension. Otherwise, the money you receive from the state will be added to your earnings and could push you into a higher tax band.

Deferring also means that your state pension will be worth more when you do take it — by deferring for one year, you´ll get an extra £493 every year after that based on current figures.

It´s always worth seeking financial advice to help understand your options and the tax implications of different decisions.

Steve Webb, director of policy at Royal London, commented: “Many people might assume that once you retire you cease to be of interest to the taxman. But these figures show that this is very far from being the truth. The number of taxpaying pensioners has nearly doubled in the last two decades. With talk of also requiring pensioners to pay National Insurance on any earnings or even pensions, the older population may start thinking of themselves as ‘Generation still taxed´.

“When planning for retirement it is vital to remember that the tax office will still want a slice of your income, which reinforces the need to put aside enough to secure a decent standard of living, even after the taxman has had his slice.”

Posted on July 11th 2018

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