Andy Burnham and new Chancellor John Healey have committed to making sure pensioners whose only income is the state pension will not pay income tax, The i Paper can reveal.
From next year the state pension will be dragged into taxation for the first time, Unless the freeze on the personal tax allowance is lifted. The state pension is currently £12,547.60 a year, just £22.40 below the personal tax allowance of £12,570 – the amount of income that can be gained before tax is paid.
Because of the state pension triple lock, which sees pensions rise by the higher of inflation, wage growth or 2.5 per cent, the state pension will exceed the personal allowance from April, making a small amount of tax due for those receiving the benefit alone.
Tax thresholds have been frozen since 2021, meaning millions of people pay more tax as wages rise, a process known as ‘fiscal drag’.
The Prime Minister has committed to the Labour manifesto, which says the triple lock will not be altered this Parliament. While he has criticised the freezing of tax thresholds, he walked back from a suggestion he would unfreeze them this week, saying any decisions on tax would be made at the Budget.
Chancellor will stick to predecessor’s commitment
Even though only a relatively small amount of tax is likely to be due, Burnham will be keenly aware of the damage the scrapping of the winter fuel payment caused for his predecessor, Sir Keir Starmer. He has also made easing the cost of living a key plank of premiership.
Experts have previously estimated that around 820,000 retirees will owe income tax on their state pension alone in 2027-28.
Burnham had allowed speculation to run in recent weeks that he would raise the personal allowance – which would cost around £9bn – but he tried to dampen it down on Wednesday, saying there was “no commitment” and that “we’ll have to look at it at the Budget”.
However, the Treasury has told The i Paper that Healey, the new Chancellor, will stick to a commitment made by his predecessor Rachel Reeves that income tax will not be levied on people whose only income is their state pension.
In last November’s Budget, Reeves pledged that “people only in receipt of the basic or new state pension do not have to pay small amounts of tax through Simple Assessment from April 2027”.
Under the Simple Assessment process, HM Revenue and Customs collects small tax sums by carrying out the calculations itself and sending someone a tax demand at the end of the year.
The Treasury told The i Paper it remained committed to the previous government’s stance.
A spokesperson said: “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.”
“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.”
Exempting state pensioners ‘unfair’
The Treasury said that work is already underway on how to exclude those solely dependent on the state pension from simple assessment, with details to be outlined in “due course”. Last November’s Budget documents promised to set this out in 2026.
It is not yet clear what the mechanism will be and pension experts told The i Paper that it would likely add complexity to the system and raise concerns about fairness.
Adam Cole, retirement specialist at Quilter, said: “The prospect of more state pensioners paying income tax is largely a consequence of the frozen personal allowance colliding with a rising State Pension due to the triple lock.
“While exempting state pension income from tax might sound straightforward, in practice it could add significant complexity to the system and create different tax treatments for people with similar overall incomes.”
Charlene Young, senior pensions and savings expert at AJ Bell, said: “Many pensioners have small amounts of additional income from savings or private pensions, which could leave people in very similar circumstances facing very different tax outcomes.
She pointed out that those on the ‘old’ state pension, who reached state pension age before 6 April 2016, receive significantly less than newer pensioners. They would not pay tax on their pension anyway therefore, so would not qualify for a tax exemption. But many of those would have private pots, bringing their total income inline with newer pensioners on just the state pension, leaving them paying tax unfairly.“There is also no indication of how much the exemption would cost,” she add. “The Conservative Party’s 2024 manifesto promised a ‘triple lock plus’ guarantee, which would have increased all pensioners’ personal allowances in line with state pension rises. That policy was estimated to cost £2.4 billion a year.“While Rachel Reeves’ proposal would have come with a lower price tag, it’s unclear whether it would be sustainable for the public finances over the long term. Combined with the additional complexity it would create and the fact that it would exclude large groups of pensioners, it’s difficult to see how the policy passes the fairness or simplicity test.”
Hence then, the article about state pensioners with no other income will be exempt from tax was published today ( ) and is available on inews ( Middle East ) The editorial team at PressBee has edited and verified it, and it may have been modified, fully republished, or quoted. You can read and follow the updates of this news or article from its original source.
Read More Details
Finally We wish PressBee provided you with enough information of ( State pensioners with no other income will be exempt from tax )
Also on site :
- 'It was unlike anything I'd witnessed before': Orcas seen headbutting a sunfish so hard that it exploded
- Nordic Capital announces agreement to sell ArisGlobal to Dassault Systèmes, following its transformation into a scaled and AI-enabled life sciences platform
- Primoris Services Corporation Sued for Securities Law Violations - Contact the DJS Law Group to Discuss Your Rights - PRIM