Millions of pensioners could find themselves paying Income Tax as State Pension payments continue to rise while the tax-free allowance remains frozen. The full new State Pension is currently on course to increase by 3.9% in April 2027 under the triple lock.
That would take the annual payment to around £13,036, putting it above the standard £12,570 Personal Allowance for the first time. However, not everyone receiving the State Pension will have to pay tax.
The Government has promised that pensioners whose only income is the basic or full new State Pension, without additional payments, will not have to pay small amounts of tax arising from the increase. Those with other sources of income may not qualify for this protection.
This includes retirees receiving a workplace or private pension, as well as those with taxable income from savings, investments, or property.
State Pension payments have always counted as taxable income, although the Department for Work and Pensions does not deduct tax before paying them.
Instead, HMRC looks at a person’s total taxable income to work out whether anything is owed.
The standard Personal Allowance is currently £12,570 and is due to remain frozen until April 2031. Pensioners receiving the older basic State Pension may also be affected if additional State Pension payments or other income take them over the threshold.
The basic State Pension is expected to rise to around £9,989 a year next April, meaning the standard payment alone would remain below the Personal Allowance.
Pensioners should add up their expected annual State Pension, private or workplace pensions and any other taxable income.
Those whose total exceeds their available tax-free allowances may have Income Tax to pay.
HMRC will usually collect the money by adjusting the tax code on a workplace or private pension.
People who already complete a Self Assessment tax return must include their State Pension income when declaring their earnings.
The exact State Pension increase for April 2027 has not yet been confirmed, and further details of the Government’s protection for people relying solely on the State Pension are still to come.
