HMRC confirms date for state pension tax change affecting thousands | Personal Finance | Finance
HMRC has provided further details on a major change to tax on the state pension. In the Autumn Budget, it was announced that the Government would make sure that people “whose sole income is the basic or new State Pension without any increments…do not have to pay small amounts of tax via simple assessment from 2027-28 if the new or basic State Pension exceeds the Personal Allowance from that point”.
The statement added that the Government was “exploring the best way to achieve this and will set out more detail next year (2026)”. You can earn up to £12,570 a year without paying income tax, but the full new state pension is currently very close to crossing over this threshold.
The full new state pension pays £230.25 a week, or £11,973 a year. Payment rates will increase 4.8 percent from next April, lifting the amount to £241.30 a week, or 12,547.60 a year, just over £20 away from using up all the personal allowance.
Because of the triple lock policy, the full new state pension will definitely cross the threshold into attracting an income tax bill from April 2027. Those on the older basic state pension can get additional amounts, so some claimants whose only income is the state pension are already over the threshold and paying tax.
After the Budget announcement in an interview with Martin Lewis, Chancellor Rachel Reeves went further and said that those whose sole income is the state pension “won’t have to pay the tax (income tax)” during this Parliament.
HMRC was quizzed by the Treasury Committee in a session this week [January 13] about how this policy will be put into practice. Cerys McDonald, director of Individuals Policy, said there are around 800,000 and a million pensioners whose only income is the state pension.
She confirmed that fresh legislation would need to be put in place to make the change. She said: “We would expect this to go through the next finance bill in the Autumn but we have mobilised a project team already in anticipation of having to make this change.
“The mitigation that we would normally use to recover this tax is simple assessment, normally we wouldn’t be processing that for 2027/2028 until after the 2028 tax year, so we’ve got a decent run in here.”
She said that at present, pensioners whose only income is the state pension will be sent a simple assessment after the end of the tax year, for them to fill in to pay the tax they owe. Ms McDonald told the committee: “There’s clearly a lot of detail to still work through and she [the Chancellor] has said that that detail will be set out in due course.” She said the new system will be “operable from April 2027”.
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