Pensioners set to pay no tax on the State Pension alone

From April 2027, a pensioner whose only income is the full new State Pension is set to owe no income tax on it, even though it will be above the personal allowance. The Budget on 28 October confirmed the Pension Tax Allowance, first announced in November 2025, which would cancel the small amount of tax otherwise due. HMRC would apply it automatically, with no claim to make.

The problem it solves

The full new State Pension is £241.30 a week this year, about £12,548 a year, just under the £12,570 personal allowance. For 2027 to 2028 the full new State Pension will be £13,036.40, which the Budget tables round to £13,037 as the threshold for the new allowance. The personal allowance stays frozen at £12,570, so the pension would sit £466.40 above it.

Without a change, that £466.40 would be taxed at 20 per cent: £93.28, which HMRC would normally collect through a Simple Assessment letter. HMRC's note on the measure expects it to take around 290,000 pensioners out of tax in 2027 to 2028, and says over 200,000 will not now receive a Simple Assessment bill.

How the allowance works

• The full allowance goes to people at or over State Pension age whose total income is no more than the full new State Pension, £13,036.40 in 2027 to 2028. Income from any source counts, so earnings and private pensions are included.

• It is worth 20 per cent of the gap between the full new State Pension and the personal allowance.

• Above that it shrinks by £1 for every £3 of extra income, and it is gone by £13,319.

• It runs for 2027 to 2028, 2028 to 2029 and 2029 to 2030, and rises with the State Pension. It can reduce a tax bill to nil but cannot create a refund.

It is due in the Finance Bill 2026-27, so it is not yet law.

Two neighbours in Bexley

Illustration, not a real client. Two retired neighbours in Bexley both get the full new State Pension in 2027 to 2028.

• Joan has nothing else. Her total income is £13,036.40, and her tax bill is nil instead of £93.28.

• Pat also has a workplace pension of £2,000 a year. Her income of £15,036.40 is well past £13,319, so the allowance does nothing for her. She pays tax on £2,466.40 at 20 per cent, which is £493.28, unchanged by the new allowance.

So the allowance protects people who live on the State Pension alone, or close to it. Anyone whose total income passes £13,319, which a modest second pension can easily do, pays tax as before.

What to check

If you are approaching State Pension age, start with what you will actually get. Your amount can be more or less than the full rate, depending on your National Insurance record. Our guide to checking your State Pension forecast shows how to read it and fix gaps. If it passes, the new allowance starts on 6 April 2027 and needs nothing from you.

About the author

Harvey Dhillon is Founder and CEO of Zmartly, an accountancy firm for small businesses. He grew up in West London and began his career in finance at Barclays, in investment banking and wealth management, before going full-time on Zmartly in 2020.

Featured photo by Kampus Production on Pexels.