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Tax Cuts Under Tories Or Tax Hikes Under Labour......
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"Sorry for the late reply. My tax code has gone down to 113. It wipes out any rise."
Assuming you have no other tax allowences or deductions, your personal allowance is £12,570. WIthout a State Pension you would thus have a tax code of 1257. If your tax code is now 113 (meaning you have £1,130 tax free allowance) it means you must have a State Pension of £11,440 (£12,570-£1,130)..
In April the State pension increased by roughly 8%. This means last year your State pension should have been around £10,592. This means you would have had a tax free allowance of (£12,570-£10592) = £1,978 so your tax code should have been 197.
The reduction in your tax code (of 84) means you pay tax on £840 more of other income this year than last.
This means if you are a standard rate taxpayer you will be liable to pay £168 more tax this year (ignoring any increases in your other income). But your state pension increased by £848 (from £10,592 to £11,440). Even if all your other income was taxed at the higher rate (40%) you would still only pay £336 more tax, against a state pension rise of £848.
If all this is roughly correct the decreased tax code cannot possibly wipe out your state pension increase. It can only mean you pay either 20% or 40% of that increase in tax (and the percentage will depend on your total income). If my figures are not roughly correct then either your tax code last year was wrong or it is wrong this year. Have you checked your coding notices to see if any other deductions from your allowance have been made?
"Not at all, TTT. I don't have any investments or shares, or own any property other than my own home."
Then unless a mistake was made (either last year or this) or there is something unusual that we do not know about, your State Pension increase cannot possibly be wiped out by your decreased tax code. The decrease in your tax code should be the value of your increased State Pension (divided by ten).
This means that you will pay tax on the amount of money equivalent to the increase. The most you would pay is 45% (if your taxable income is above £125,140), 40% (if your taxable income is between £50,271 and £125,140) or 20% (if your taxable income is £50,270 or less).
You can check for any potential errors quite easily:
1. Find out what your last year's State Pension (annual total) was. If you receive it weekly, multiply it by 52, if you receive it four-weekly multiply it by 13.
2. Do the same for this years State Pension.
3. Deduct the result (1) from the result (2) to find out the increase.
4. Divide the increase by 10
5. Find out your tax code for last year (from the figures you provided earlier it should have been around 197 or thereabouts)
6. Deduct from that, this year's tax code (which you said was 113).
The answer from (6) should be near enough the same as the answer from (4).
If your pension increase has indeed been wiped out by your decreased tax code there is either a mistake or there is something going on which you have not mentioned (such as tax being collected from previous years or an estimate of unaxed income made for this current year). Either way, you need to get it sorted because it is costing you many hundreds of pounds.
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