State pensioners have been urged to review their tax responsibilities as new regulations are soon to be introduced. HMRC has confirmed that legislation will be presented to Parliament soon as part of the changes.
Key changes to state pension
Labour revealed in the Autumn Budget 2025 that a new measure would be introduced to ensure individuals whose sole income is the state pension without increments are exempt from income tax. This measure is necessary as from April 2027, the full new state pension will exceed the personal allowance, meaning recipients relying solely on the state pension would face income tax on their payments. The current full new state pension provides £241.30 weekly, or £12,547.60 annually.
This sits just beneath the personal allowance of £12,570, the standard amount you can earn each tax year without incurring income tax. The Government was recently questioned about how the new measure will operate, as complete details have not yet been outlined.
Treasury statement
An HM Treasury spokesperson said: "Anyone whose only income is the full new or basic state pension without any increments will not pay income tax and we are committed to that over this Parliament. By keeping the triple lock, 12 million pensioners will see their income rise by up to £470 this year, and they continue to benefit from the highest personal allowance in the G7."
The department confirmed that preparations are underway behind the scenes on the new measure. This follows senior HMRC officials stating in January that new legislation would be required to implement the changes.
In response to these developments, Hannah Martin, pensions expert and founder of Rich Retiree, has urged pensioners to review their tax arrangements to be sure everything is present and correct.
State Pensioners to face major tax change
She advised claimants: "You need to be fully aware of your financial position to ensure you are paying the correct amount of tax. This includes all income, including state pension, private pensions, savings and investments, property income, and part time work."
"It's important to remember that the state pension is taxable and is paid to you gross, so you must declare it as income." However, some forms of income that pensioners receive are exempt from taxation.
Ms Martin said: "Income that is not subject to tax includes ISAs, your annual personal savings allowance and annual dividend allowance and any income earned under the Rent a Room Allowance."
Savings changes
Regarding savings allowances, it's important to note that further significant changes are arriving from April 2027. The £20,000 ISA allowance is being effectively reduced, meaning you can only utilise up to £12,000 of the allowance for cash deposits. The remaining £8,000 will exclusively be available for deposits into stocks and shares ISAs. Fortunately for state pensioners, however, they will remain unaffected by these changes.
Those aged 65 and over will be exempt from the new allowance, retaining the existing allowance. Additionally, the rate applied to taxable interest earnings is set to rise, with a two percentage point increase across all tax bands.
