State pensioners have a chance to reduce their HMRC tax on their State Pension by using a little-known perk. This perk could potentially save them up to £252 each year. The personal allowance is the amount of income that can be earned tax-free, currently set at £12,570 for those earning below £100,000 per year after pensions and other deductions. Any earnings above this allowance are taxed at a rate of 20% on income between £12,571 and £50,270, with higher rates applied to higher earnings.
If you or your partner earn less than £50,270, you may be able to benefit from the marriage allowance perk. The Marriage Allowance allows non-taxpayers to transfer £1,260 of their Personal Allowance to their basic rate taxpaying spouse or civil partner. This increases the spouse’s Personal Allowance and reduces their taxable income. This perk is useful for married couples where one partner stays at home to care for children, as well as for retirees who are basic rate taxpayers with a non-taxpaying spouse.
For example, if a non-taxpayer receives the full State Pension of £10,636.60 per year and transfers £1,260 to their basic rate taxpaying spouse, this amount is still within their personal allowance of £12,570. This transfer can save the basic rate taxpayer £252 in tax each year and can be back-dated up to four years if applicable. If you need help with claiming the allowance or reporting a change of circumstances, you can contact the helpline on 0300 200 3300.
It’s important for state pensioners to be aware of these opportunities to reduce their tax bill and maximize their income in retirement. By taking advantage of the marriage allowance perk, couples can potentially save hundreds of pounds each year. Make sure to explore all available options and seek assistance if needed to ensure you are making the most of your pension and tax benefits. Subscribe to our newsletters for more updates and information on financial tips for retirees.
