Around 900,000 retirees, particularly those benefiting from the marriage allowance, might find themselves paying taxes on their state pensions for the first time, an expert has warned.

As the tax year end is months away, Britons are urged to reassess their tax position to avoid losing hundreds. Experts from Spencer Churchill have explained the impact of recent pension policy changes and how it will affect low-income retirees the hardest.

They said: “This is a direct consequence of the substantial rise in state pensions and the freezing of tax thresholds. It’s a significant change that requires careful financial review and planning.”

For those among the 900,000 affected, especially the elderly relying on the marriage allowance, they explained it’s crucial to reassess their tax position.

Marriage Allowance lets the lower earner transfer £1,260 of their Personal Allowance to their husband, wife or civil partner.

This can reduce their tax by up to £252 annually. If eligible, couples can also backdate their claim for the previous four tax years and receive a lump-sum payment worth more than £1,000.

They said: “With the new state pension potentially pushing you over the personal allowance limit, you might face unexpected tax liabilities.

“It’s important to calculate if continuing to transfer part of your allowance to your spouse remains beneficial under these new conditions.”

Steps to take for financial management:

• Those impacted by this change can start by reviewing their pension income against the frozen tax thresholds.
• Britons can consider consulting a financial advisor to understand the best course of action – whether to continue with the marriage allowance or adjust their tax strategy to mitigate any potential financial strain.

Previously, the personal tax allowance has increased every year in line with inflation and earnings which means the state pension has always been around 90 percent less than the £1,260 threshold.

However, tax thresholds including the personal tax allowance have been frozen at the same rate since April 2021.

Chancellor Jeremy Hunt confirmed that tax thresholds would remain frozen until 2028 as the Government attempts to generate more money without directly raising taxes.

With the recent pension increases and the freeze in tax thresholds, a substantial number of the elderly population, potentially up to 900,000, are entering a new financial landscape.

This situation underscores the need for pensioners to be acutely aware of how changes in pension policies can directly impact their personal finances.

The experts said: “For those affected, particularly in the lower-income bracket, it’s important to navigate this new tax environment carefully.

“This may mean reconsidering how they utilise the marriage allowance or seeking ways to optimise their tax position. It’s not just a matter of assessing current finances, but also planning ahead to accommodate these changes.”