The UK Government has confirmed that further details of plans to protect pensioners from paying small amounts of Income Tax will be announced at the Autumn Budget next week. The commitment is intended to prevent older people whose incomes only just exceed the £12,570 Personal Allowance from facing the administrative burden of paying small tax bills.
The latest update follows a series of written parliamentary questions about how HM Revenue and Customs (HMRC) will identify pensioners covered by the commitment, whether legislation will be required and the future use of Simple Assessment.
Government Reaffirms Budget 2025 Commitment
Treasury and Pensions Minister Torsten Bell confirmed that the UK Government remains committed to the measure announced at Budget 2025 and Chancellor John Healey will provide further information at the Budget on October 28.
The update comes ahead of the final Triple Lock figure for the annual State Pension uprating, with September's Consumer Price Index (CPI) inflation rate due to be published by the Office for National Statistics (ONS) on Wednesday, October 21.
Average earnings growth of 3.9 per cent is currently expected to determine the State Pension increase from April 2027, although the final Triple Lock comparison will not be complete until the inflation figure is published.
State Pension Approaching Tax Threshold
The Personal Allowance, which is the amount of income most people can receive before paying Income Tax, remains frozen at £12,570. This means annual increases to the State Pension could bring more pensioners above the tax threshold.
The full New State Pension is currently worth £241.30 per week, or £12,547.60 annually, just £22.40 below the Personal Allowance.
If payments increase by 3.9 per cent next April, the weekly rate will rise to around £250.70, or £13,036.40 annually. This would put the full New State Pension £466.40 above the tax-free threshold for the first time.
Parliamentary Questions on Implementation
Conservative MP Dame Caroline Dinenage asked what steps HMRC would take to identify individuals covered by the commitment that pensioners would not pay Income Tax on their State Pension.
In a written response on October 19, Mr Bell said: "In line with the commitment made at Budget 2025, pensioners whose incomes only just exceed the Personal Allowance will not have the administrative burden of paying small amounts of tax in this Parliament. The Government will set out more detail at Budget 26."
Dame Caroline also asked whether legislation would be required to ensure people whose only income is the basic or New State Pension would not pay Income Tax during this Parliament.
Responding, Mr Bell said: "In line with the commitment made at Budget 2025, pensioners whose incomes only just exceed the Personal Allowance will not have the administrative burden of paying small amounts of tax in this Parliament. The Government will set out further details at Budget 2026."
Conservative MP Dr Luke Evans also asked about the potential costs facing HMRC without measures to reduce the administrative burden on pensioners paying small amounts of tax through Simple Assessment. He separately asked about discussions with pensioner representative groups on reducing administration for pensioners from 2027/28.
Mr Bell provided the same response, reiterating the Government's commitment to preventing pensioners whose incomes only just exceed the Personal Allowance from having to pay small amounts of tax during this Parliament.
How State Pension and Income Tax Interact
The State Pension is taxable income, although payments are made without Income Tax being deducted.
People whose total taxable income exceeds their Personal Allowance may have tax to pay, depending on their circumstances and any available allowances or reliefs.
This can affect pensioners receiving income from workplace or private pensions, employment or other taxable sources alongside their State Pension.
HMRC can collect tax through adjustments to tax codes where pensioners have another source of income taxed through PAYE. In some cases, people may receive a Simple Assessment tax calculation requesting payment directly.
The UK Government's commitment is intended to prevent pensioners with incomes only just above the Personal Allowance from having to deal with small tax payments. Further details of how the protection will operate are expected at Budget 2026.
