Chancellor Rachel Reeves has frozen the income tax thresholds to 2031, meaning many more pensioners will be paying tax
Pensioners have been issued advice by HMRC (Image: Getty)
HMRC today issued a warning to all state pensioners – and told them the key figure to watch out for is “£12,.570. On X the tax collector warned people that if their earnings cross that threshold then they will be subject to tax.
It warned: “Tax in retirement works like usual. Up to £12,570 of your personal income may be tax-free (your Personal Allowance).
“Anything above that is taxed based on how much you earn. Taxable income may include your State Pension, other pensions, savings and investments.”
Chancellor Rachel Reeves has frozen the income tax thresholds to 2031, meaning many more pensioners will be paying tax. Generally pensioners whose only income is the state pension do not have to pay any income tax in practice. This is because their annual income falls below the personal tax allowance – the amount of income taxpayers may receive tax-free.
In the 2025 Budget the government announced the personal allowance would be frozen at its current level up to April 2031. It also announced that pensioners whose sole income is the basic or new state pension would not have to pay small amounts of tax via simple assessment from 2027/28 if the new or basic state pension exceeded the personal allowance from that point – although it has not yet explained how this would happen.
It is anticipated that due to the triple lock the state pension will pass over the £12,570 threshold in 2027. Also HMRC added about state pensions: “It counts as taxable income. State pension age is rising to 67 by March 2028. The amount you get depends on your National Insurance record.”
On the issue of tax it explained: “You’ll simply add up all the money you get each year (your income) from things such as your State Pension, any workplace or private pensions, investments, rented property and self-employment.
“You’ll use this to work out if you owe any tax. For some people, a chunk of their income will be tax-free. This is called a Personal Allowance. The current standard tax-free Personal Allowance is £12,570 a year.
“If you get a Personal Allowance and your income goes over that amount, you’ll start to pay tax on it. The rates you pay are separated into ‘thresholds’. A threshold is simply a financial limit.”
| Your income | Your Income Tax rate |
|---|---|
| Up to £12,570 | 0% (Tax-free Personal Allowance) |
| £12,571 to £50,070 | 20% |
| £50,071 to £125,140 | 40% |
| Over £125,140 | 45% |
HMRC example:
- Jenny gets £53,000 from her State Pension and a private pension.
- £12,570 is her Personal Allowance. This is tax-free.
- The bit of her income between £12,571 and £50,070 is taxed at 20%. This means she pays £7,500 in Income Tax on this part.
- The bit of her income between £ 50,071 and £53,000 is taxed at 40%. This means she pays £1,171.60 in Income Tax on this part.
- So, in total, Jenny pays £8,671.60 in Income Tax.
If a person has gaps in their National Insurance record, they may be able to fill them with what we call ‘National Insurance credits’. Find out all you need to know on GOV.UK. They are awarded for reasons such as illness, unemployment, or caring responsibilities. Credits can be automatic or require an application.
Check your credits
Check your National Insurance record to find out if you have credits. If you applied for credits but they’re wrong on your record, contact the office where you applied.