The Treasury has confirmed that thousands of pensioners whose only income is the state pension will not have to pay income tax. The full new state pension is currently worth £12,547.60 a year, just below the £12,570 personal allowance. However, the state pension is set to rise above the allowance in April 2027 due to the triple lock, which guarantees increases based on inflation, wage growth, or 2.5%.
Commitment to no tax on state pension only
A 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.” The spokesperson added that 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.
This backs a previous commitment by former chancellor Rachel Reeves, who stated in last year's Budget that “people only in receipt of the basic or new state pension do not have to pay small amounts of tax through Simple Assessment from April 2027”.
Impact on pensioners with multiple incomes
It was previously estimated that around 820,000 retirees would become liable for income tax on their state pension alone in 2027/28. However, pensioners with multiple forms of income will still be expected to pay tax. Prime Minister Andy Burnham is under pressure to increase the personal allowance, which has been frozen since 2021 and is set to remain at its current level until at least 2031.
Frozen tax thresholds have led to more people being dragged into paying tax for the first time or into a higher rate. Earlier this week, Burnham said there is “no commitment at this point to change” but indicated it could be looked at later this year in the Budget. He had previously warned that any change would be “difficult given the financial circumstances in which we find ourselves”.
Current tax rates
Income tax is charged at 20% on earnings above the personal allowance, 40% on earnings above £50,270, and 45% on earnings above £125,140.
