HMRC warning to state pensioners over £25,000 limit - 'you could pay more tax'

State pensioners are being warned ahead of an expected tax rise. A financial expert is warning Brits of the state pension age to review their finances as they could soon find themselves in a higher tax bracket.

Payment rates for the state pension are set to rise by 4.8% from next April as a result of the triple lock. The government policy ensures that the annual rise in the state pension will not be less than the average increase in wages across the UK, inflation or 2.5%. However, state pensioners may be moved into a higher tax bracket if their income increases.

As reported by Wales Online, Chris Ball, CEO of Hoxton Wealth, said: "My general advice to all pensioners: Maximise your and any spouse's personal allowances to make sure you're making the most of all of your different pools of income. So, where a lot of people just draw from their pensions first, but won't take from their ISAs, they may end up in a higher rate tax band."

Each person is permitted to earn up to £12,570 every year. This means a couple can effectively earn up to £25,140 across two tax-free allowances.

ISA savings are completely tax-free, which includes interest earnings, investment growth or any income you derive from the allowance. Mr Ball is urging pensioners to view their finances holistically.

He explained: "You need to look at all your assets as one - and if you need support to do so, work with a financial adviser who will help you make your tax contributions as efficient as possible.

"If you stay in the basic rate tax band, the maximum tax you'll pay is 20 per cent - if you don't plan properly, you could end up paying a lot more tax in the 40 per cent band."

Brits currently pay 20% on their income between their personal allowance and up to £50,270. However, this figure rises to 40% for any income above this and up to £125,140.

However, once you earn over £100,000, you start to lose your personal allowance. It then reduces by £1 for every £2 you earn over this amount.

Mr Ball added: "Most forms of income that pensioners are likely to receive is taxable, this includes the state pension, personal and workplace pensions. Defined benefit pension income is also taxable, as is any rental income that they receive. And this is unlikely to change in November's Budget.

"There aren't any income tax exemptions for pensioners, in general. Because of this, we encourage pensioners to ensure that they are using their personal allowance every year - while also maximising their husband or wife's personal allowance."