State pensioners urged to 'maximise' 2 key allowances to avoid 'higher tax band'

State pensioners have been urged to check over their finances as they could be dragged into a higher tax band. State pension payments are expected to increase 4.8 percent from next April, thanks to the triple lock. The triple lock ensures state pension rates increase each April in line with the highest of 2.5 percent, inflation or the rise in average earnings.

But if your income goes up, you could end up in a higher tax band. Chris Ball, CEO of Hoxton Wealth, urged people to make the most of their tax-free allowances.

He 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 has a personal allowance meaning they can earn up to £12,570 a year, so a couple can effectively earn up to £25,140, across their two tax-free allowances, and avoid paying tax on the amount. Building up your ISA savings is also a good way to keep your tax bill down as ISAs are entirely tax-free, including any interest earnings or investment growth from an ISA, or any income your derive from an ISA.

Mr Ball encouraged pensioners to consider all their finances together. 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." When you pay tax on your income above the personal allowance, you pay 20 percent on your income between this level and up to £50,270.

Maximise your allowances

Any income above this amount and up to £125,140 will be taxed at 40 percent. However, once you earn over £100,000, you start to lose your personal allowance, with the allowance reducing by £1 for every £2 you earn over this amount.

Mr Ball pointed out that many sources of income are liable for income tax. He said: "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."