Chancellor Rachel Reeves has given a major update on whether older Britons will be taxed on their state pension alone from next year.
Speaking before the Treasury Committee, she pledged that those with no other source of income would remain exempt from tax throughout this Parliament.
Ms Reeves told MPs: “We are working on how that will work at the moment, but we have been clear that, if your only income is from the new state pension, you will not be subject to income tax during the course of this Parliament.”
The Chancellor indicated that specific details about how the exemption will operate would be published later this year.
The Chancellor has given a state pension update
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GETTY / BBC
From April 2026, state pension payments will rise by 4.8 per cent, bringing the full new amount to £241.30 per week, equivalent to £12,547.60 annually.
This figure sits just over £20 below the £12,570 personal allowance threshold, which is the amount people begin to pay tax to HM Revenue and Customs (HMRC) on earned income.
However, the triple lock mechanism guarantees pension increases of at least 2.5 per cent each year, meaning the full new state pension will inevitably surpass the tax-free threshold from April 2027.
HMRC officials informed MPs in January that legislation would be required to implement the exemption, with the finance bill in Autumn 2026 identified as a potential vehicle.
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Ms Reeves emphasised the scale of pension increases under the current Labour Government during her committee appearance.
She said: “From the beginning of April, the new state pension is going to go up by £575 a year, and over the course of this Parliament, it is forecast that the new state pension will be £2,000 a year higher by the end of the forecast, because of this Government’s commitment to the triple lock.”
The Chancellor attributed the looming tax issue to decisions made by her predecessors, specifically the previous Conservative Government.
“The previous Government froze the income tax thresholds. It is in those years-for those freezes-that the new state pension will come into income tax if nothing is done, but I have committed to do something,” Ms Reeves stated.
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Treasury Committee chair Meg Hillier pressed the Chancellor on circumstances where pensioners might still face a tax bill despite the new policy.
Ms Hillier said: “But if you earned bank interest above the £5,000 threshold, or you had a small dividend, you would be subject to income tax”
The starter rate for savings permits up to £5,000 in tax-free interest annually, though this allowance reduces pound for pound once income exceeds the personal allowance.
Ms Reeves acknowledged this limitation, responding: “It is already the case that most pensioners with any form of private income are taxed. We want, of course, to make that as simple as possible.”