The Treasury has confirmed the personal tax allowance will rise to £13,036, matching the full new state pension increase from April, ensuring pensioners whose only income is the state pension pay no tax.
Chancellor John Healey is set to outline the detail of this change in the budget on October 28. The move follows official earnings figures suggesting the full new state pension could rise by almost £500 a year, pushing it above the current £12,570 personal tax threshold.
Triple Lock Increase Confirmed
The triple lock guarantee raises the state pension each April in line with whichever is highest among total earnings growth measured from May to July of the previous year, CPI inflation in September of the previous year, or 2.5%.
Recent figures from the Office for National Statistics (ONS) revealed total wage growth, including bonuses, reached 3.9% in the quarter ending July, down from 4.2% in the three months ending June. Should earnings growth be confirmed at 3.9%, experts suggest this could add £9.40 a week to the full new state pension, pushing it to £250.70 — an annual rise of just under £500, bringing it to approximately £13,036.
Treasury Confirms Threshold Change
On BBC Breakfast, financial expert Dan Whitworth explained: “We already had a commitment from the governments that pensioners whose only income is the new state pension would not pay tax on it. What we’re getting now is the detail of how that will happen.
“Now this is because under the rules of the triple lock, the new state pension increases every year by whichever is higher. So inflation 2.5% or average annual wage growth. Now the new state pension is currently £12,548. Now in April because of the triple lock it will go up to £13,036. Now, if that’s your only income, it would push you above the personal tax allowance threshold of £12,570. So, you’d have to pay tax on nearly £500.”
Mr Whitworth said the Treasury has now confirmed the changes: “What the Treasury has confirmed overnight is that threshold will increase to £13,036, matching the increase to the new state pension, which will of course also benefit people who might only have a small new state and small private pension. So long as their income is below that threshold.
“And one last crucial detail on this, the Treasury’s also confirmed that personal tax allowance threshold will keep pace with whatever the new state pension goes up by every year until the end of this parliament. A move which will cost taxpayers around £200 million.”
