State pensioners have been urged to review their tax obligations as new regulations are set to be introduced imminently. HMRC has confirmed that legislation will be presented to Parliament shortly to enact the changes.
Labour revealed in the Autumn Budget 2025 that a new policy would be implemented to guarantee that people whose sole income is the state pension without increments are exempt from paying income tax. This policy is necessary because from April 2027, the full new state pension will exceed the personal allowance threshold, 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, equivalent to £12,547.60 annually.
This sits marginally beneath the personal allowance of £12,570, the standard amount you can earn each tax year without paying tax. The Government was recently pressed for clarification regarding how the new policy will work, as the full details have yet to be published.
'We are committed'
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 closed doors on the new policy. This follows senior HMRC officials stating in January that new legislation would be required to bring in the new policy.
With the tax change looming, Hannah Martin, pensions expert and founder of Rich Retiree, has urged pensioners to review their tax circumstances carefully.
'You must declare it'
She warned 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." Certain income received by pensioners, however, falls outside the scope of taxation.
Ms Martin explained: "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 is worth highlighting that several other significant changes are due to take effect from April 2027. The £20,000 ISA allowance is set to be effectively reduced, limiting cash deposits to a maximum of £12,000.
The remaining £8,000 will be exclusively available for deposits into stocks and shares ISAs. Fortunately for state pensioners, however, they will remain unaffected by these changes.
Savers aged 65 and over will be exempt from the new allowance, retaining the existing allowance. Another change to note is that the rate applied to taxable interest earnings is set to rise, with a two percentage point increase across all tax bands.
