Rachel Reeves has frozen income tax thresholds which means under triple lock those earning only new State Pension face bill from 2027
Martin Lewis investigated new State Pensioners paying tax (Image: ITV)
Martin Lewis has given a key update for everyone on the new State Pension concerned about being taxed following last week’s budget. Chancellor Rachel Reeves last week froze the lowest income tax threshold which stands at £12,570.
This means if the triple lock stays, then the new State Pension will rise above that threshold in 2027 – meaning potentially people only on that income could start paying tax on it. Viewer Kevin asked on the Martin Lewis Money Show Live on ITV last night: “Following on from your show on Thursday |I have been trying to find out if a pensioner who receives the State Pension and their other income is all tax free (ie from ISA’s or Premium Bonds or under the savings allowance), will they have to pay more tax?”
Martin replied: “It’s a really interesting question. So look, ISAs are not taxable so they won’t count, Premium Bonds are not taxable. Under your savings allowance, your taxable earnings are taxable, but you haven’t earned over the allowance. So that’s a slightly different category.
“The honest answer is we don’t yet know how this will work.” Mr Lewis explained the full new State Pension is £12,558 and the personal allowance is frozen at £12.570 until 2031 – which is the amount a person can earn tax free each year.
Mr Lewis said the new state pension will be £30 below the allowance from April 2026. He added: “So anyone who’s got any other form of earnings – well you’re going to go over it if you’ve got the full new state pension you will have to pay tax.
“But from 2027 because we know the state pension has to rise by a minimum 2.5 per cent because of the triple lock here’s a projection. The minimum it could rise because of the triple lock 2027 it’s going to be about £12,861, £300 more than the tax free allowance as that’s staying stable and it will go more and more and more.”
The minimum new state pensions based on the lowest rise would be £12,861 in 2027, £13,183 in 2028, £13,512 in 2029 and £13,850 in 2030 according to the Martin Lewis Money Show Live predictions.
He added: “So you can see the issue that’s going on. My main concern was the admin. How are we going to have 90-year-olds doing self assessment forms when they’re only earning £50 over the limit?“ Mr Lewis referred back to his interview with Chancellor Rachel Reeves after the budget where he asked a question from a viewer Rebecca: “Does my 85-year-old father who is living with dementia now have to complete a tax return as his state pension will take him over the personal allowance.”
Ms Reeves replied: “So if you just have a state pension and you don’t have any other pension you don’t have to fill in a tax return. I make that commitment for this Parliament. You’re right 2027 looks like the time it will cross over. We are working on a solution as we speak to ensure we’re not going after tiny amounts of money.”
Mr Lewis said: “People will have to pay the tax, they just won’t have to do a return or will they not have to pay the tax?“ Ms Reeves replied: “In this Parliament they won’t have to pay the tax. Further out I’m not able to make any commitments.”
Mr Lewis asked: “I’m going to ask the edge case and I know it’s always difficult. Someone who’s got a £50 a year private pension on top of the state pension, they’re going to have to pay tax I presume?” Ms Reeves said: “I’m only making that commitment for people who just get the state pension. Obviously a lot of people in retirement do self assessment and do pay tax on their incomes and that’s not going to change but I do recognise that if you’re just in receipt of the basic state pension and the new state pension it wouldn’t be the right thing to do to tax those small amounts of money.“
Then on his ITV show he added: “What I find interesting is imagine someone who is a little bit off the full state pension. And they had a very small private pension but they still earned less than the full state pension. Under those rules they would have to pay tax and therefore they would be punished for having a private pension. Which is why I think the thing isn’t fully thought through yet.it works yet.”
Another viewer, June, asked: “It was said on your show that the Chancellor said no-one on full State Pension would have to pay tax. I have the SERPS contribution on my pension and this year was billed £71. Should I get this back? And if not will I only have to pay tax on my State Pension next year? This is my only income.”
Martin said he’d come across a lot of people in that situation. He said: “If you are on the old State Pension you get the basic pension and you get the extra contributory pension called SERPs. You could already be over the personal allowance now. The answer is you are taxed on it now and you won’t be able to get that money back.
“I think the truth is they are looking to ensure from 2027 people on the full new State Pension only won’t pay tax. How it works for the old pension, I don’t know how it works yet and I don’t believe the Chancellor knows how it works yet.”
