Home > Personal Income Tax > Are Social Security Benefits Taxable?

Are Social Security Benefits Taxable?

By: J.A.J Aaronson - Updated: 17 Apr 2014 | comments*Discuss
 
Social Security Sickness Unemployment

In the British tax system there are two types of income on which you are not required to pay tax. The first of these is known as ‘tax free’, while the second is described as ‘tax exempt’.

Tax free income is available to every taxpayer in the country. This comes in the form of personal allowances; that is, the portion of each taxpayer’s income that falls below the Income Tax and National Insurance threshold and is therefore not taxed. Similarly, some taxpayers may be eligible for relief against their tax bill, most frequently because of business expenses (see our article Allowable Expenses and Deductions on this site).

Tax Exempt Income

Tax exempt income, however, is different. This type of income includes some forms of savings income (for example interest on ISAs and other ‘tax-efficient’ savings vehicles). Importantly, it also includes a number of social security benefits. These benefits can be divided into means tested (that is, dependent on the recipient’s financial circumstances) and non-means tested. Means tested benefits that are exempt from tax include:
  • Council tax benefit
  • Housing benefit
  • Income support (with an exception that is listed below)
  • Pension credits
  • Social fund payments

The list of non-means tested benefits that are exempt from tax is considerably longer, but the key examples of such benefits include:

  • Child benefit
  • Pensioners’ Christmas bonus
  • Disability living allowance
  • Maternity allowance (but not statutory maternity payments)
The full list of tax exempt non-means tested benefits is available on the government’s Directgov website.

Taxable Benefits

A large number of other benefits, however, are taxable. The list of taxable social security benefits includes:
  • Statutory maternity pay
  • Jobseeker’s allowance
  • Retirement pension
  • Higher rate incapacity benefit
  • Income support, if it is being drawn as a result of a strike or other industrial action
Again, an exhaustive list is available on the Directgov website.

The social security payment that the highest number of people will be required to pay tax on is the Basic State Pension. After this is paid by the government to the pensioner, it is then the responsibility of the recipient to ensure that they pay the correct amount of tax on this payment. Indeed, this is the case for all social security benefits, and so it is important that you are familiar with which of your benefits are taxable and which are not in order that you pay the correct amount to the Inland Revenue.

Payment of Tax

The way in which you pay tax on benefits will depend on how you pay the rest of your tax. If you are already a Self Assessment Taxpayer, you will be required to give complete information regarding your benefit payments on your self assessment. The Inland Revenue will then calculate the amount of tax that you owe. If, however, you pay Income Tax at source through the PAYE System, then it is likely that tax payments on benefits will be deducted from your wage packet in the same way.

This is also the case for pensioners who receive both the Basic State Pension and payments from a private or occupational pension scheme; in these instances, the tax payable on your Basic State Pension will be deducted from your private pension payments at source.

You might also like...
Share Your Story, Join the Discussion or Seek Advice..
Why not be the first to leave a comment for discussion, ask for advice or share your story...

If you'd like to ask a question one of our experts (workload permitting) or a helpful reader hopefully can help you... We also love comments and interesting stories

Title:
(never shown)
Firstname:
(never shown)
Surname:
(never shown)
Email:
(never shown)
Nickname:
(shown)
Comment:
Validate:
Enter word:
Latest Comments
  • Lou
    Re: How Will My Second Job Be Taxed?
    Hi, I work full time my annual income is 25,000. I am considering taking a second job, how would this effect the amount of…
    14 November 2018
  • Rjrjrj
    Re: How Will My Second Job Be Taxed?
    Hi just need advice on my 2nd job im currently working full time @37 hrs per week min wage and maybe starting 2nd job @16 hrs…
    9 November 2018
  • carol
    Re: What is My Tax Code?
    I have one job permanent but get paid 32 weeks a year. another job in the same place zero hours contract, paid 35 weeks a year I would…
    9 November 2018
  • Ellie
    Re: How Will My Second Job Be Taxed?
    We are currently on working tax credits. My husband earns 8200 and has taken a zero hours job earning roughly 2000 a year .…
    7 November 2018
  • Mikey
    Re: Claiming Tax Relief on Mileage
    I work on building sites as an employee but get no mileage allowance or extra money to cover fuel and travel in my own vehicle.…
    7 November 2018
  • tink
    Re: Can Tax Allowance Be Claimed on Work Clothes?
    Hi I work in a school as a family support worker and travel all over the Wirral supporting them in the…
    6 November 2018
  • Hellc98
    Re: Should I be Paid Mileage Allowance?
    My employer has refused to pay my mileage as they say I have not put my odometer readings on the claim forms. I have…
    5 November 2018
  • Kelly
    Re: What is My Tax Code?
    Hi, I earnt 9k and got taxed 1.1k so far in this tax year as I was on 35k for 3 months. Then I had 3 months of unemployment. And for the rest…
    31 October 2018
  • Roddy
    Re: How Will My Second Job Be Taxed?
    Good afternoon. I have just retired from my career. My annual pension is 26k. I am working part time earning about 4k a year…
    29 October 2018
  • Sbuj
    Re: How Will My Second Job Be Taxed?
    Hi I have full time job plus extra part time if I will start working for agency tax for one of my extra jobs will b change…
    16 October 2018