State pensioners have been given new Income Tax Personal Allowance rules which will save them from paying tax until at least 2028.
State pensioners are being given new tax rules (Image: Getty)
State pensioners are being given new Income Tax Personal Allowance rules that will exempt them from paying tax on their state pension income until at least 2028.
Speculation has been rife that state pensioners will start being hit with tax bills on their state pension income from 2027, thanks to increases to the Triple Lock pushing state pension payouts higher, coupled with freezes on Personal Allowance thresholds since 2021 which has seen new state pensioners in particular pushed ever closer to the £12,570 threshold to start owing tax on their DWP benefit.
This coming financial year, new state pensioners with a full National Insurance record would be just £22 away from owing tax on their state pension, even if they had no other income, and in 2027 they would pass the threshold even with the lowest triple lock rise possible and owe some tax.
But it has now been announced by Chancellor Rachel Reeves that state pensioners who have no other income – so no savings interest, property income, work salary or private pension – and who rely solely on the state pension payments will not owe any tax at all.
The exemption was announced in Rachel Reeves’ Budget on Wednesday, but on Thursday night, the Chancellor clarified to Martin Lewis on his ITV1 show that it’s definitely a total exemption from tax for state pensioners, following initial reaction from financial experts who thought it was only an exemption from having to complete the HMRC’s self-assessment form.
On Wednesday, Ms Reeves told Parliament: “People only in receipt of the basic or new state pension do not have to pay small amounts of tax through simple assessment from April 2027”.
Martin Lewis asked Rachel Reeves on his ITV show on Thursday: “I’m going to start with [a question from] Rebecca, who says, does my 85-year-old father, who’s living with dementia, now have to complete a tax return, as his state pension will take him over the Personal Allowance?”
Rachel Reeves then replied: “So if you just have a state pension, you don’t have any other pension, we are not going to make you fill in a tax return.
“So 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 that we’re not going after tiny amounts of money.”
Martin then clarified with a further question: “But 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?”, and Ms Reeves replied: “In this Parliament they won’t have to pay the tax.
“Further on, I’m not able to make any commitments on that. We are looking at a simple workaround at the moment.”
Martin then told her: “I hadn’t actually got that from the Budget so that’s really good to have that clarity that people won’t be paying the tax.”
Martin then told his studio audience after playing the clip: “See the surprise on my face?
“They said in the Budget yesterday that you won’t have to do an assessment. Nobody has picked that up, I haven’t seen anybody in the mainstream as picking that up to say you won’t have to pay tax, just that you won’t have to do an assessment.
“You’ve just heard the Chancellor there haven’t you. If you have a state pension with no other income, at least until the end of this Parliament, so at least three more years probably, you will not have to pay any tax.”
