.Pensioners could see an increase in their HMRC personal allowance following a new tax announcement as part of the budget.
Addressing MPs, Chancellor Rachel Reeves said that pensioners wouldn’t be made to pay small amounts of tax on their state pensions if they exceed the £12,570 limit.
But, it wasn’t clear how that would work, or if it would involve an increase in personal allowance. Speaking to Martin Lewis, Ms Reeves clarified, saying: “So if you just have a state pension, we are not going to make you fill in a tax return of any type. Yes, and so we make that commitment for this parliament. You’re right. 2027 looks like the time that it will cross over.
“We are working on a solution as we speak, to ensure that we’re not going after tiny amounts of money.”
Martin Lewis then asked: “But people will have to pay the tax, they just won’t have to do a return, or will they not have to pay the tax?” to which, the Chancellor clarified: “In this Parliament, they won’t have to pay the tax, we’re just looking at a simple workaround at the moment.”
To this, he added: “Okay, so I haven’t actually got that from the budget, so that’s really good to have clarity that they won’t be paying the tax.”
This follows analysis by former Pensions Minister Sir Steve Webb, who said ahead of the budget: “Commenting, Steve Webb, partner at pension consultants LCP said: “The standard rate of the new state pension is creeping ever closer to the frozen personal tax allowance. Indeed, we know for certain that someone who has no other income aside from the new state pension will be a taxpayer come April 2027. It is already the case that nearly three quarters of all pensioners pay income tax, and the ongoing freeze in tax thresholds coupled with steady rises in the pension will drag more and more into the tax net”.
But the news has not been greeted with enthusiasm in all corners. taking to Mumsnet, one poster said: “Am I being unreasonable to be annoyed pensioners effectively now get a bigger personal allowance? Because of the fiscal drag from not increasing personal allowances the chancellor has announced basic state pension will not be taxable. So if you earn this amount you pay tax on it despite having the extra costs of working. Pensioners are also much more like to own their homes.
“How on earth does this make any sense?”
Another poster agreed: “I feel that, in general, government policies seem to be giving to older people and taking away from younger people.”
But, many disagreed, with one saying: “No I have elderly grandparents. I am delighted.”
The standard Personal Allowance is £12,570, which is the amount of income you do not have to pay tax on.
It decreases if your income is over £100,000. For every £2 you earn over £100,000, you lose £1 of your tax-free Personal Allowance.
The former Conservative Government froze the threshold until April 2028, rather than allowing it to rise with inflation and wage growth, meaning more people will go onto higher tax brackets.
If you’re married or in a civil partnership, you may be able to claim Marriage Allowance to reduce your partner’s tax if your income is less than the standard Personal Allowance.
If you do not claim Marriage Allowance and you or your partner were born before 6 April 1935, you may be able to claim Married Couple’s Allowance.
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