Chancellor Rachel Reeves has provided an update on major changes to tax on the state pension. The Government announced in the Autumn Budget 2025 a new policy around tax on the state pension as many claimants face a new tax bill.

The Government said as part of the statement that it would make changes so people “whose sole income is the basic or new state pension without any increments…do not have to pay small amounts of tax via simple assessment from 2027-28 if the new or basic state pension exceeds the personal allowance from that point”.

The clarification was needed as from April 2027, the full new state pension will use up all the personal allowance threshold and cross the line into attracting a tax bill. You can earn up to £12,570 a year without paying income tax thanks to the allowance, but the full new state pension now pays £230.25 a week, or £11,973 a year.

Payment rates will go up 4.8 percent from April 2026, lifting the amount to £241.30 a week, or 12,547.60 a year, just over £20 away from using up all the personal allowance. Thank to the triple lock policy, the full new state pension will definitely cross the threshold into attracting an income tax bill from April 2027.

The policy ensures payments rise each April in line with whichever is highest: 2.5 percent, the rise in average earnings or inflation. Soon after the Budget, the Chancellor was asked about the issue of more pensioners being dragged into paying tax by consumer expert Martin Lewis.

She told Mr Lewis that those whose sole income is the state pension “won’t have to pay the tax (income tax)” during this Parliament. As the Government has yet to set out the details of how the new tax exemption policy will work, Conservative MP Luke Evans pressed the Chancellor for further details in the Commons.

More state pensioners ‘drawn into paying tax’

He asked: “I want to raise the issue of the freezing of thresholds and the effect on the state pension. When the Chancellor did it in her Budget, she told Martin Lewis that some people would be pulled into paying tax and won’t have to pay small amounts of tax and won’t have to do a tax return.

“The updated [OBR] forecast now says this year 600,000 pensioners will be drawn into paying tax, and going up to a one million by the end of this Parliament. Could she set out what the definition is of small amounts of tax and what the mechanism is she will use to make sure they don’t have to do a tax return?”

Ms Reeves said in reply: “As I said after the Budget last year, if you just get the basic state pension you will not be paying tax. We will be setting out more details of that in the coming months.” Top HMRC officials were also recently asked about how the new policy will be put in place by the Treasury Committee.

Speaking in January 2026, Cerys McDonald, director of Individuals Policy at HMRC, said there are somewhere between 800,000 and a million pensioners whose only income is the state pension. She said they would need to bring in fresh legislation to make the tax changes.

Legal changes needed

Ms McDonald said: “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. The mitigation that we would normally use to recover this tax is simple assessment, normally we wouldn’t be processing that for 2027/2028 until after the 2028 tax year, so we’ve got a decent run in here.”

She said that at present, pensioners whose only income is the state pension will be sent a simple assessment after the end of the tax year, which they then fill in to pay the tax they owe. Ms McDonald told the MP committee: “There’s clearly a lot of detail to still work through and she [the Chancellor] has said that that detail will be set out in due course.”

Ms McDonald confirmed the new system will be “operable from April 2027”. Another key change to the state pension to note is that the state pension age is increasing.

The access age is going up from the current 66 from April 2026, moving up in stages to reach 67 by April 2028.