HMRC has unveiled critical new information about a significant overhaul of how income tax is applied to the state pension, a move set to affect hundreds of thousands of retirees across the UK.
The Chancellor's Pledge and the Looming Threshold
During the recent Autumn Budget, Chancellor Rachel Reeves made a key commitment. The Government pledged to ensure that individuals "whose sole income is the basic or new State Pension" will not have to pay small amounts of tax via simple assessment from the 2027-28 tax year onwards. This applies if the state pension amount exceeds the Personal Allowance at that point.
Currently, the tax-free Personal Allowance stands at £12,570 per year. The full new state pension is rapidly approaching this threshold. Presently, it pays £230.25 weekly, or £11,973 annually. However, a 4.8% increase scheduled for next April will push the weekly amount to £241.30, resulting in an annual total of £12,547.60.
This leaves a mere £22.40 of the Personal Allowance unused. Due to the triple lock policy, the state pension is projected to definitively cross the Personal Allowance threshold from April 2027, which would, under current rules, trigger income tax bills for those who rely on it as their only source of income.
HMRC Grilled on Practical Implementation
The policy's practicalities were the focus of a Treasury Committee hearing on January 13. Cerys McDonald, HMRC's Director of Individuals Policy, provided crucial insights. She revealed that there are between 800,000 and one million pensioners whose only income is the state pension.
McDonald confirmed that new legislation would be required to enact this change, stating: "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."
She explained the current process, where affected pensioners receive a simple assessment form after the tax year ends to settle any tax owed. The new system aims to prevent this necessity altogether for the defined group. McDonald emphasised that the policy will be "operable from April 2027", but noted "a lot of detail to still work through."
What This Means for Pensioners
Chancellor Reeves later reinforced the commitment in an interview with financial journalist Martin Lewis, explicitly stating that those whose sole income is the state pension "won't have to pay the tax [income tax]" during this Parliament.
This intervention is designed to shield a vulnerable group from administrative complexity and unexpected bills. It addresses a growing anomaly where the state pension, boosted by the triple lock, would otherwise push people over the tax threshold without any additional disposable income.
The Government's policy document confirmed it is "exploring the best way to achieve this and will set out more detail next year (2026)." For now, nearly a million pensioners have been given a clear assurance that their financial position will be protected from this specific tax interaction from 2027 onwards.
