State pensioners are being warned about a potential £2,500 tax bill as the full new state pension is set to exceed the personal allowance threshold. The warning comes as the Government prepares to implement a new rule exempting those whose only income is the state pension from income tax, but campaigners argue this does not go far enough.
Triple Lock Pushes Pension Above Tax-Free Allowance
The full new state pension currently stands at £241.30 per week, equating to roughly £12,550 per year. This is just below the personal allowance of £12,570, the amount you can earn tax-free each year. However, the April 2027 triple lock increase—which raises the pension by the highest of 2.5 per cent, inflation, or average earnings—will push it beyond that threshold, meaning basic-rate taxpayers could face a tax bill of around £2,510.
Under current rules, the state pension is treated as taxable income, like wages or private pensions. This has sparked outrage among pensioners who have already paid tax and National Insurance throughout their working lives.
Petition Calls for Complete Tax Exemption
A petition to Parliament is calling for the state pension to be made completely tax-free. The petition argues: "British citizens who have, throughout their working life, paid National Insurance and tax, should not then be taxed on the state pension regardless of other earnings or pensions." It describes the current situation as "abhorrent," stating: "They have worked throughout their lives and paid tax on their earnings, to then be taxed again is abhorrent."
The petition remains live on the parliamentary website for signatures.
Government's Autumn Budget Proposal
In the Autumn Budget 2025, Labour announced plans to introduce a new rule ensuring that people whose only source of income is the state pension, without increments, will not have to pay income tax on it. This policy was designed to prevent pensioners from being taxed as the pension rises. However, full details have yet to be revealed.
Senior HMRC officials have stated that new legislation would be required to implement the change, potentially in the 2026 Autumn Finance Bill. The Government has not yet confirmed the exact timeline or scope of the exemption.
Impact on Pensioners
For now, pensioners with additional income—such as private pensions or part-time work—may still face tax on their state pension. The petition seeks to address this by advocating for a blanket exemption. As the triple lock continues to increase the state pension, the issue is expected to become more pressing, with more pensioners potentially being drawn into the tax net.
