New pensioner tax allowance shields state pension income up to £13,036
The Budget will introduce a higher income tax allowance for people over state pension age, so pensioners with total income up to the full new state pension will not pay income tax. The change is intended to prevent people whose only income is the state pension from facing tax as it rises above the standard allowance next April.
The new allowance will be £13,036, matching the projected full new state pension, and will rise with it until at least April 2030. For pensioners earning between £13,037 and £13,319, the allowance will be withdrawn by £1 for every £3 of extra income, creating an effective 53 per cent tax rate; around 200,000 people may be affected. The maximum tax saving is about £94 in 2027-28, while some people on older state pension arrangements or higher payments may not qualify for the relief.
In short
- Pensioners with income up to £13,036 will be exempt from income tax.
- A taper could mean a 53 per cent effective rate for some.
- Around 200,000 pensioners may fall within the affected income range.
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The case for
A higher allowance protects pensioners who rely solely on the state pension from paying income tax simply because the pension has risen above the standard allowance. Linking the threshold to the full new state pension gives that protection a clear basis and could help people on low, fixed incomes manage rising costs.
The case against
The relief is narrowly targeted and modest, with a maximum saving of about £94 a year, while some pensioners on older arrangements or higher payments may not qualify. Withdrawing the allowance as income rises could also impose a 53 per cent effective tax rate on people in the affected band, creating a sharp penalty for modest additional income.
Explained simply
The state pension is a regular payment from the government for people who have reached state pension age. It is taxable income, although tax is generally due only when someone’s total income is above their tax-free allowance.
The standard allowance is the amount of income a person can receive before paying income tax. The full new state pension is due to rise above that allowance, so people relying on it alone could otherwise face a tax bill. The change concerns how the allowance applies to pensioners and how it is linked to the state pension.
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Originally published by Daily Mail as “Poorest pensioners will be let off income tax under new rules revealed in Budget – but some face a 53% sting”.