New Chancellor John Healey has increased the personal tax-free allowance to £12,861 for some households, specifically shielding pensioners from income tax as the state pension is set to rise above the current threshold. The move comes after Mr Healey replaced Rachel Reeves as Chancellor on Monday.
State pension set to exceed tax threshold
The state pension currently stands at £12,547.60 a year, just £22.40 below the personal tax allowance of £12,570 – the amount of income that can be earned before tax is paid. However, with the triple lock commitment from new Prime Minister Andy Burnham, the full state pension is set to increase by a minimum of 2.5 per cent to £247.30 per week, or £12,861 annually. That would be £314 over the current personal tax-free allowance.
Mr Healey's Treasury department has now confirmed it is "committed" to ensuring that pensioners whose only income is their pension will not pay income tax. A Treasury spokesman said last night: "Anyone whose only income is the full new or basic State Pension without any increments will not pay income tax and we are committed to that over this Parliament."
Triple lock pledge maintained
Andy Burnham, who succeeded Sir Keir Starmer as Prime Minister, has committed to keeping the triple lock next year. This means a minimum 2.5 per cent increase to the full state pension, which could rise to £12,861. Mr Burnham said: "I heard issues related to the personal allowance more than anything on doorsteps in Makerfield. I think it's been frozen now, hasn't it, for a number of years... So it has dragged more people in - pensioners, I think - and that particularly I think has become a growing issue."
A Reddit user questioned whether the measure should be scrapped, but Mr Burnham replied: "I appreciate there's a lot of debate about this but it is important that the commitment in the manifesto stands."
Impact on pensioners and workers
The Treasury spokesman added: "By keeping the Triple Lock, 12 million pensioners will see their income rise by up to £470 this year, and they continue to benefit from the highest Personal Allowance in the G7." However, workers earning between £12,571 and £50,270 may face a £960 blow as the personal allowance freeze continues to drag more people into tax bands.
