Tax and Pension Related Challenges for UK Seniors

Tax code and general finance considerations become increasingly complicated as a person gets on in age. If you are over the age of 50 and approaching the age of retirement, make sure that you are aware of the following pitfalls and points of confusion faced by ageing citizens in the UK: 

Misunderstanding how pensions are taxed

You spend your whole life paying taxes on your income. Unfortunately, once you retire, this trend continues. However, the amount of tax that you owe on a pension depends on several factors, and it is easy to get confused regarding how much you owe – or even if you owe at all.

As an example, state pensions in the UK are not taxed below a certain level. You can read up on the specifics on how pensions are taxed on the HM Revenue & Customs website. However, the best way to proceed is to contact an accountant and have them assess your situation. Doing so ensures that you stay on the right side of the law without having to pay any more than is absolutely required. After all, every bit of savings counts when dealing with a fixed income. 

Finding the Right Forms

This is a problem that taxpayers of any age bracket can face. It is certainly not exclusive to seniors. The way in which tax forms are organised and prescribed is complicated to begin with, and anyone without a background in accounting or tax code law could be forgiven for being confused.

The problem is that filing an incorrect form can completely derail the tax return process. You may end up paying more (or less) than required. Likewise, filing an incorrect form could end up invalidating the entire return, subjecting you to further headaches (at minimum) or even fees.

Missing out on special credits and benefits

Every year, upwards of £5.5 billion in tax credits intended specifically for the elderly go unclaimed in the UK. These funds are made freely available by the government. However, the fact that their would-be recipients are unaware of them means that ultimately go unused.

These are a few common benefits that are often overlooked:

• Housing Benefit: This benefit is intended to help elderly persons pay for housing if they rent rather than own.
• Pension Credit: This benefit tops up your income to a guaranteed minimum level; roughly one in three eligible people fail to claim their pension credit. 
• Council Tax Benefit: This specifically applies to those who have disabilities or require special care.

Again, failure to understand what types of benefits are available to you could actually be costing you money in the long-run. With that in mind, seeking the services of a chartered accountant or financial advisor could actually end up earning you more money than you spent on the services to begin with. 

Mishandling your annuity

There have been a number of changes and revisions to the way annuities are handled in the UK. What many ageing Britons do not realise is that they are actually able to choose which firm they purchase the annuity through. Many are unaware that they can purchase an annuity from a firm aside from the one they have charged with taking care of their investments.

While it is refreshing to have more freedom and control over your financial future, this also exposes us to greater risk. Most importantly, long-term financial planning is not something that you want to attend to yourself if you do not have a background in finance. A single misstep could set you on track for financial ruin further down the road. With that in mind, consult the experts before you prematurely draw on an annuity. 

Counting on your pension before you qualify

Those who are nearing the age at which they qualify to draw a pension are likely to start making changes to the way they structure their budget, finances and assets. The problem here is that the government is constantly revising up the age at which a person qualifies. While new regulations are usually announced well before they are implemented, it is still possible that a person could end up banking on a monthly stipend that’s actually not even available to them for a few more years. Make sure that you know how the law applies to you before you make any major financial decisions.

Author: Kristen Rodrigues is a writer working on a freelance basis for Brebners, a company found in London and Kent that believes that they can help any business with their tax and accountancy matters.