Changes to the state pension are coming in next year (Image: Getty)
State pensioners have been urged to check over their tax obligations as new rules come in soon. The update comes as HMRC has said that legislation will go before Parliament soon.
Labour announced in the Autumn Budget 2025 that a new policy would be brought in, to ensure people whose online income is the state pension without increments do not pay income tax. This policy was needed as from April 2027, the full new state pension is set to rise beyond the personal allowance, meaning claimants on the state pension alone would pay income tax on their payments.
The current full new state pension pays £241.30 a week, or £12,547.60 a year. This is just below the personal allowance of £12,570, the standard amount you can earn each tax year without paying income tax.
The Government was recently asked for an update about how the new policy will work, as the full details have yet to be set out. An HM 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.
“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.”
The department confirmed that work is going on behind the scenes on the new policy. This comes after senior HMRC officials said in January that legislation would need to be brought in to bring about the changes. In light of the changes, Hannah Martin, pensions expert and founder of Rich Retiree, has encouraged pensioners to check over their tax situation.
‘You must declare it’
She told claimants: “You need to be fully aware of your financial position to ensure you are paying the correct amount of tax. This includes all income, including state pension, private pensions, savings and investments, property income, and part-time work.
“It’s important to remember that the state pension is taxable and is paid to you gross, so you must declare it as income.” Some income you may receive as a pensioner is not subject to tax.
Ms Martin explained: “Income that is not subject to tax includes ISAs, your annual personal savings allowance and annual dividend allowance and any income earned under the Rent a Room Allowance.”
Savings changes
On the question of savings allowances, it’s worth noting that some other key changes are coming in from April 2027. The £20,000 ISA allowance is being effectively cut, so you can only use up to £12,000 of the allowance for cash deposits.
The other £8,000 will only be available for deposits into stocks and shares ISAs. However, fortunately for state pensioners, they will not be affected by the changes.
This is because savers aged 65 and over will not be subject to the new allowance and will retain the current allowance. The rate you pay on your taxable interest earnings is also going up, increasing two percentage points across all tax bands.