Pension income, whether from private plans or a state pension, receives tax benefits in a bid to make retirement saving attractive. Despite this, state pension payments can contribute to a higher tax bill.
On income tax specifically, Mr Jones said: “A similar message exists for income tax.
“June saw £15,226million collected in income tax which is the lowest this year and we could see some strange figures over the next few months as the furlough scheme winds down.
“The Treasury saw total receipts for a 12 month period reach £206,426million, and similar to IHT this is the highest 12 month period, going back to March 2009 when HMRC’s datasheet starts.”
Mr Jones went on to break down his outlook for taxes going forward: “There are no signs of capital gains tax and inheritance tax slowing but we could see mixed fortunes for income tax with the changes to the CJRS – we will have to wait and see.
“As the lockdown rules relax we could see VAT receipts increase and no doubt the various alcohol duties will spike to coincide with the football.”
Where income tax is due on pension income, the provider(s) involved will take off any tax owed before it’s paid out.
They will also take off any tax owed on a state pension.
At the end of the tax year, a person will get a P60 from their pension provider which shows how much tax was paid over the year.
If a retirees only income is from a state pension, they’ll be responsible for paying any tax owed.
This will be done by filling in a Self Assessment tax return.
However, those who started getting their state pension on or after April 6 2016 will not need to send a return, HMRC will write to them confirming what they owe.
Full details on tax rules can be found on the Government’s website and impartial guidance can be sought from the likes of Money Helper and Citizens Advice.