The ‘overly-complex’ methods in which pensioners are taxed should be simplified, says the Office of Tax Simplification (OTS).
Completing the first stage of its review into the pensioner taxation system, the OTS described the current structure for taxing pensioners as a ‘maze of special tax rules and unfamiliar forms’, which is causing older tax payers increasing problems.
Whilst the initial report offers few immediate recommendations for change, it highlights key areas of complexity including the age related and married couples allowance and the resulting taxation of savings. The publication, which has been reported to the Chancellor of the Exchequer, also recommended a further review of ‘convoluted’ PAYE forms and tax administration.
The OTS admits that some of the suggested preliminary reforms – including the possibility of ending the taxation of state pensions altogether – would cause contention.
John Whiting, tax director for the OTS, said: “Too many people find the tax system gets more complex as they get older. Many of the issues we highlight are well known but we have taken our time to consider and document the full extent of the current system, taking into account fully the concerns and complexities, before we make any solid recommendations.”
“Our report floats a number of possible ways forward to mitigate the difficulties pensioners face. We haven’t shied away from the big issues and I hope that this interim report helps stimulate a debate on pensioner taxation. We are aiming to make final recommendations that will mean pensioners can have a better understanding of a simpler tax system, and can deal with their responsibilities more easily.”
The second stage of the OTS review, which will be published at the end of the year, will now begin to explore the issues raised in more detail and make specific simplification recommendations.
