Money
How income tax freeze could hit YOUR state pension revealed
WITH just days to go until Chancellor Rachel Reeves’ first budget – we look at how some state pensioners could end up paying tax and how to avoid it.
One move the Labour government have been rumoured to be considering is an extension on freezing income tax thresholds.
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These determine how much you can earn before paying basic, higher, or additional rate tax.
The Personal Allowance – the amount you can earn before you start paying income tax – has been set at £12,570 since 2021.
It is meant to remain frozen until 2028, but the rumour is that Rachel Reeves could continue the freeze to 2030 or beyond.
Freezing tax thresholds – the point where you start paying higher rates of income tax are also frozen – is a stealth move that’s making us all pay more.
Read more on the state pension
As wages rise, more of us are being dragged into higher tax bands.
A study by the London School of Economics found that by the 2027/8 tax year, the average person will hand over 13.6% of their income to the taxman, up from 11.6% in 2021/2 – all thanks to static tax thresholds.
It’s not just workers feeling the pinch. Pensioners are getting hit too, with the unmoving thresholds affecting their finances as well.
Your pension – including the state pension – isn’t exempt from income tax.
However, up until now, most pensioners have avoided paying it, thanks to the Personal Allowance shielding their income.
“Frozen tax thresholds are stealthily pushing up our tax bills and we face the very real prospect that in the coming years someone solely reliant on the state pension will have to pay tax on it,” says Helen Morrissey, head of retirement analysis at Hargreaves Lansdown.
Thanks to the Triple Lock the state pension rises every year – it’s set to go up by 4.1% next April.
The Triple Lock guarantees that your state pension increases annually by whichever is higher: average wage growth, inflation or 2.5%.
It is a generous safeguard, boosting the full state pension from £9,339.20 in 2021 to £12,016.75 from April 2025.
But this could lead to a collision with the Personal Allowance, which is frozen at £12,570, just a few hundred pounds above the state pension.
How does the state pension work?
AT the moment the current state pension is paid to both men and women from age 66 – but it’s due to rise to 67 by 2028 and 68 by 2046.
The state pension is a recurring payment from the government most Brits start getting when they reach State Pension age.
But not everyone gets the same amount, and you are awarded depending on your National Insurance record.
For most pensioners, it forms only part of their retirement income, as they could have other pots from a workplace pension, earning and savings.
The new state pension is based on people’s National Insurance records.
Workers must have 35 qualifying years of National Insurance to get the maximum amount of the new state pension.
You earn National Insurance qualifying years through work, or by getting credits, for instance when you are looking after children and claiming child benefit.
If you have gaps, you can top up your record by paying in voluntary National Insurance contributions.
To get the old, full basic state pension, you will need 30 years of contributions or credits.
You will need at least 10 years on your NI record to get any state pension.
If the Triple Lock triggers a rise of 4.6% or more in April 2026 anyone receiving the full state pension will be liable to pay income tax on it.
With pension increases of 10.1% in 2023 and 6.7% in 2024, it’s highly likely the state pension could exceed the Personal Allowance soon.
“Rachel Reeves’ decision to brutally scale back the Winter Fuel Payment will see millions of pensioners taking a hit of up to £300 later this year,” says Tom Selby, director of public policy at AJ Bell.
“There could, however, be a silver lining coming in April 2025 in the form of a bumper state pension boost linked to average earnings growth figures.
Although even this could come with a catch.
“While the personal allowance remains frozen, more and more people are going to be dragged over the threshold, with millions of retirees just receiving state income at risk of being dragged into paying income tax.”
The idea of paying tax on a state benefit might sound crazy, but that’s exactly where we’re heading.
One option could be for the government to introduce a pensioner tax allowance – something the Conservatives dubbed the ‘Triple Lock Plus’ before the election.
This would keep the state pension below the tax-free threshold.
But Labour wasn’t having it at the time, calling the plan not ‘credible’.
Even if the government finds a way to shield the state pension from income tax, frozen thresholds will still drag millions of pensioners into paying tax during retirement.
Just a small private pension could be enough to push them over the Personal Allowance.
“The triple lock may increase state pensions, but with tax thresholds frozen, many will find themselves paying taxes on what should be a lifeline during retirement,” says Jon Greer, head of retirement policy at Quilter.
“For those with a combination of state and private pensions, the hit will be felt even sooner, eroding their incomes at a time when financial security is crucial.
“Compounding this pressure, Reeves’ decision to axe the Winter Fuel Payment adds salt to the wound.
“Together, these policies threaten to squeeze pensioners from all sides.”
If you are worried about paying income tax on your pension, there are steps you can take to reduce what you owe.
Right now, most people who rely solely on the state pension for their retirement don’t pay any tax.
But if you’ve got the state pension and other sources of income in retirement you may face a bill from HMRC.
“Pensioners looking to manage their tax bills should plan their incomes carefully,” says Morrissey.
One trick is to make the most of your tax-free lump sum.
Most of us can take 25% of our private or workplace pensions tax-free, but you don’t have to grab it all at once.
You can take a small amount each year to top up your income, letting you take less from your taxable pension.
For example, if you need £15,000 a year to live on, and you’ve got the full state pension plus £60,000 in your private pension, here’s a trick.
After your state pension, you still need £3,500 a year.
Since you can take £15,000 of your pension tax-free, you could take £1,000 as income from your pension and £2,500 from your tax-free lump sum.
This way, you’ve got the cash you need, without handing any of it to the taxman.
Another option is to boost your pension income without a tax bill by dipping into your savings.
“Any money taken from an ISA is tax free so this could prove handy in keeping those bills down,” says Morrissey.
You can use your savings just like the tax-free lump sum, reducing how much you need from your private pension and keeping your taxable income lower.
But in the end, the Government needs to face up to the fact that we’re heading toward a crazy situation where pensioners are taxed on their state pension – and they need to act before it’s too late.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.
Plus, you can join our Sun Money Chats and Tips Facebook group to share your tips and stories
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2024 is turning out to be a solid year for the global semiconductor industry, driven by multiple catalysts. These include the booming demand for chips that can manage artificial intelligence (AI) workloads, a turnaround in the smartphone market’s fortunes, and a recovery in the personal computer (PC) market.
These factors explain why the global semiconductor industry’s revenue is expected to jump 16% in 2024 to $611.2 billion, according to World Semiconductor Trade Statistics (WSTS). That points toward a nice turnaround from last year, when the semiconductor industry’s revenue fell 8%. Even better, the semiconductor space is expected to keep growing in 2025 as well, with WSTS projecting a 12.5% increase in the industry’s earnings to $687.4 billion next year.
More specifically, WSTS predicts a whopping 25% increase in the memory market’s revenue in 2025 to $204.3 billion. As it turns out, memory is expected to be the fastest-growing semiconductor segment next year as well, following an estimated jump of almost 77% in this segment’s revenue in 2024.
There’s one company that could help investors tap this fast-growing niche of the semiconductor market next year: Micron Technology (NASDAQ: MU). Let’s look at the reasons why buying this semiconductor stock could turn out to be a smart move right now.
WSTS isn’t the only forecaster expecting the memory market to surge higher next year. Market research firm TrendForce estimates that the sales of dynamic random access memory (DRAM) could jump 51% in 2025, while the NAND flash storage market could clock 29% growth. Both these markets are expected to reach record highs next year.
The growth in these memory markets will be driven by a combination of strong demand and improved pricing. TrendForce is forecasting a 35% year-over-year increase in DRAM prices next year, driven by the increasing demand for high-bandwidth memory (HBM) that’s used in AI processors, as well as the growth in DRAM deployed in servers. Meanwhile, the growing demand for enterprise-class solid-state drives (SSDs) and the growth in smartphone storage will be tailwinds for the NAND flash market.
These positive trends explain why Micron is set to begin its new fiscal year on a bright note. The company’s revenue in fiscal 2024 (which ended on Aug. 29) increased 61% year over year to $25.1 billion. The company posted a non-GAAP (generally accepted accounting principles) profit of $1.30 per share, compared to a loss of $4.45 per share in fiscal 2023, driven by a big jump in its operating margin on account of recovering memory prices.
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Tech pioneer Intel (INTC) has seemingly missed out on the artificial intelligence boom — and part of it can reportedly be traced back to a decision not to buy the chipmaker at the center of it all almost two decades ago.
Intel’s former chief executive Paul Otellini wanted to buy Nvidia in 2005 when the chipmaker was mostly known for making computer graphics chips, which some executives thought had potential for data centers, The New York Times (NYT) reported, citing unnamed people familiar with the matter. However, Intel’s board did not approve of the $20 billion acquisition — which would’ve been the company’s most expensive yet — and Otellini dropped the effort, according to The New York Times.
Instead, the board was reportedly more interested in an in-house graphics project called Larrabee, which was led by now-chief executive Pat Gelsinger.
Almost two decades later, Nvidia (NVDA) has become the second-most valuable public company in the world and continuously exceeds Wall Street’s high expectations. Intel, on the other hand, has seen its shares fall around 53% so far this year and is now worth less than $100 billion — around 30 times less than Nvidia’s $3.4 trillion market cap.
In August, Intel shares fell 27% after it missed revenue expectations with its second-quarter earnings and announced layoffs. The company missed profit expectations partly due to its decision to “more quickly ramp” its Core Ultra artificial intelligence CPUs, or core processing units, that can handle AI applications, Gelsinger said on the company’s earnings call.
And Nvidia wasn’t the only AI darling Intel missed out on.
Over a decade after passing on Nvidia, Intel made another strategic miss by reportedly deciding not to buy a stake in OpenAI, which had not yet kicked off the current AI hype with the release of ChatGPT in November 2022.
Former Intel chief executive Bob Swan didn’t think OpenAI’s generative AI models would come to market soon enough for the investment to be worth it, Reuters reported, citing unnamed people familiar with the matter. The AI startup had been interested in Intel, sources told Reuters (TRI), so it could depend less on Nvidia and build its own infrastructure.
CryptoCurrency
Microsoft Urges Shareholders to Vote Against a Proposal to Assess Bitcoin as a Diversification Investment: Filing
The National Center for Public Policy Research, a conservative think tank, has notified shareholders of Microsoft that it intends to propose a Bitcoin Diversification Assessment at the company’s annual meeting on Dec. 10, a filing shows.
In a Schedule A filing with the U.S. Securities and Exchange Commission on Thursday, Microsoft laid out issues that will be discussed at the company’s next shareholder meeting. One of the proposals suggests that the tech firm should look into bitcoin to hedge against inflation and other macroeconomic influences.
The board recommends shareholders to vote against this proposal, the filing reveals, arguing that Microsoft already “carefully considers this topic.”
“Past evaluations have included Bitcoin and other cryptocurrencies among the options considered, and Microsoft continues to monitor trends and developments related to cryptocurrencies to inform future decision making,” according to a company statement in opposition of the proposal.
“As the proposal itself notes, volatility is a factor to consider in evaluating cryptocurrency investments for corporate treasury applications that require stable and predictable investments to ensure liquidity and operational funding. Microsoft has strong and appropriate processes in place to manage and diversify its corporate treasury for the long-term benefit of shareholders and this requested public assessment is unwarranted,” it said.
The National Center for Public Research, a member of Project 2025 argued that bitcoin is an “excellent, if not the best, hedge against inflation,” and that at minimum, companies should invest 1% of its total assets into the cryptocurrency.
Microsoft’s top shareholders include Vanguard, BlackRock and State Street.
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