Major changes to tax on the state pension are approaching, raising concerns among claimants. The government has confirmed that a new policy will be introduced before the 2027 tax year begins, requiring amendments to UK legislation.
New Tax Exemption for State Pension Only
Chancellor Rachel Reeves announced in the Autumn Budget 2025 that individuals receiving only the state pension without additional increments will not be liable for income tax. Currently, the full new state pension is £241.30 weekly (£12,547.60 yearly), while the personal allowance stands at £12,570. With the triple lock mechanism ensuring annual increases, the pension will exceed this threshold from April 2027, creating a tax liability under existing rules.
Triple Lock and Its Impact
The triple lock, which Labour pledges to maintain, raises the state pension each April by the highest of inflation, average earnings growth, or 2.5%. This means the full new state pension will inevitably surpass the personal allowance, affecting hundreds of thousands of pensioners. However, implementation specifics remain unknown.
Unanswered Questions
Hannah Martin, pensions expert and founder of Rich Retiree, highlighted several unresolved issues. She noted that the government has not explained how HMRC will identify eligible claimants. Key uncertainties include:
- How will small amounts of additional income, such as £1 in savings interest, be treated?
- Will recipients of the old state pension with additional state pension be included?
The full basic state pension is currently £184.90 weekly (£9,614.80 annually), but many on the old system receive higher amounts due to personal circumstances.
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."
