New State Pensioners Without Additional Income Receive Significant Tax Relief from Labour

Pensioners receiving only the new state pension will not be required to pay income tax to HM Revenue and Customs (HMRC), even if their pension payments exceed the Personal Tax-Free Allowance. The Department for Work and Pensions (DWP) has indicated that the state pension is expected to surpass the personal allowance threshold during the current parliamentary term.

Chancellor Rachel Reeves has assured that individuals whose sole income is from the basic or new state pension will have their tax liabilities waived. According to the Budget 2025 publication, the government plans to reduce the administrative burden for these pensioners by exempting them from paying small amounts of tax if their pension income exceeds the personal allowance starting from the 2027/28 tax year.

This relief is set to remain in effect until the end of this parliament, likely in 2029, though it could occur sooner. The government is currently evaluating the most effective method to implement this change and will provide further details next year.

This development follows warnings from experts like Spencer Churchill, who noted that if the triple lock mechanism continues, the full state pension is likely to surpass the personal allowance by April 2027. This scenario could result in pensioners paying income tax solely on their state pension, a prospect that presents political challenges for the government. Balancing this issue is complex: removing the freeze on the personal allowance would significantly impact public finances, while adjusting the triple lock risks alienating older voters ahead of elections.

MoneySavingExpert founder Martin Lewis questioned Chancellor Reeves about the potential need for pensioners to file tax returns if their state pension exceeded the personal allowance. Reeves confirmed that those whose only income is the state pension will neither have to file tax returns nor pay income tax during this parliamentary term. However, pensioners with private pensions or other sources of income may still be liable.

For the 2025/26 tax year, UK taxpayers can earn up to £12,570 tax-free. Beyond this, the income tax rates (excluding Scotland) are 20% basic rate on income up to £37,700, 40% higher rate on income between £37,701 and £125,140, and 45% additional rate on income above £125,140. Notably, the personal allowance decreases by £1 for every £2 earned above £100,000, disappearing entirely at £125,140 or more.

Importantly, the income tax thresholds will remain frozen until 2027/28, which means that inflation could push more taxpayers into higher tax brackets than if the thresholds increased with inflation.