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Pensioners' guide to your 2023-24 tax return

Journalist: Marc Shoffman, Freelance

ended 22. November 2023

Hello,

I am writing a guide for the Telegraph on what retirees should consider when doing their tax return.

I am keen to cover what pensioners should be considering/may not be aware of in terms of tax when it comes to taking their state or private pension for the first time and those who are deep into retirement. 

e.g could more people be pushed into paying tax or higher tax bands as the state pension increases, what are the tax implications when taking a lump sum/withdrawals/other types of retirement income?

Also keen on any tips for beating the taxman.

Kind regards

Marc

 

4 responses from the Newspage community

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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Most pensioners shouldn’t have to complete a self assessment when they retire. Taking money from a drawdown scheme is much like an annuity or workplace income, it’s taxed at source.

If you’re taking a taxable lump sum HMRC could over tax you and you may want to use a P55 to claim this back, but you won’t be expected to complete a tax return unless you have other income that HMRC wouldn’t ordinarily y know about.
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Samuel Gee
Director at Manning Gee Investments Limited
Pensioners typically have their income tax deducted directly by their pension providers through PAYE, sparing them the task of completing a tax return.

With the triple lock increase in 2024 and the highest savings rates seen for years, thousands of pensioners are going to be paying income tax for the first time since their retirement, and with this comes a responsibility to pay all the tax that is due, whether it's taxed at source or not.

Ensuring your finances are positioned in the best way possible can help mitigate the effects of tax, by taking pension withdrawals tax efficiently and ensuring use of ISA allowances, savings allowances and other tax allowances that may be available - but unless you use them, you may lose them, costing you unnecessary tax implications and don't forget while the state pension itself is not taxed, it does form part of your taxable income.
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David Robinson
Co-Founder at Wildcat Law
Many pensioners are paying thousands in tax annually when they don't have to. This is because they often use their pension incorrectly.
Too often pensioners draw income from their pension pots only to then save it in an ISA, or even worse, a high-interest account. This is because they typically lack access to financial advice as most advice models are still based upon selling a product.
Instead of drawing income from personal pensions other forms of savings could be accessed first which would save tax. If for example instead of topping up a full state pension income with personal pension income you draw £3,000 per annum from your ISA you would receive circa £13,600 with no additional tax to pay. If you had taken £3,000 as pension income you would have paid over £200 in tax.
Many people also draw their 25% tax free cash from their pension and leave it in "savings" instead this can be taken in series of payments instead to provide tax free income.
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Joshua Gerstler
Chartered Financial Planner at The Orchard Practice
Many people do not realise that their State Pension is liable to Income Tax. This can come as a shock at first.

Many people ask about taking money out of their pension and putting it into savings or ISAs. This is often a bad idea. If you take income from your pension it will be liable for Income Tax. Unless there is a need to do so, I do not want someone taking money out of a tax efficient investment, costing themselves thousands of pounds in tax, to then put it somewhere else. For a higher rate tax payer, the investment would need to grow by about 67% to recoup the 40% paid in tax.