Chancellor Rachel Reeves has delivered a significant update for millions of retirees, confirming that individuals whose sole income is the state pension will not be required to pay income tax.
Threshold Breach and the Triple Lock Guarantee
This clarification comes as the state pension is set to increase by 4.8 per cent in April 2026, pushing the full new state pension to £241.30 per week, or £12,547.60 annually. The current personal allowance, the amount you can earn before paying income tax, is frozen at £12,570.
This means the new pension rate will be just over £20 below the tax threshold next year. However, due to the government's triple lock policy—which guarantees the pension rises by the highest of 2.5%, average earnings growth, or inflation—the full new state pension is projected to definitively exceed the personal allowance after April 2027.
Administrative Simplification, Not a New Regime
Despite this future breach, the Government has now assured pensioners that they will not face an income tax bill. Lee Murphy, Managing Director of The Accountancy Partnership, explained the reasoning behind the move.
"Chasing tiny tax bills isn’t that efficient," Murphy stated, "so in practice this could mean not issuing tax returns or simple assessments where the state pension creeps above the frozen personal allowance by a small amount."
He emphasised that this measure is primarily about streamlining administration for a specific group, rather than creating a separate tax system. "The usual PAYE system and tax codes would still apply to pensioners with private or workplace pensions," he added.
Vital Support for Retirees
Murphy highlighted the critical role of the state pension, describing it as a vital lifeline for many retirees who have limited opportunity to increase their earnings. He acknowledged the complexity of the tax system but suggested the change could be beneficial.
"The tax system must work for everyone," he said. "Although it will inevitably involve difficult choices, making changes which will help free up HMRC resources for other areas can be beneficial for everyone."
This update provides certainty for pensioners reliant on the state pension, ensuring that promised increases under the triple lock will not be eroded by an immediate tax liability, even as the pension's value crosses the nominal tax threshold.
