State pension update over new tax rule and how HMRC will 'identify' claimants

Concerns have been raised about a key change to tax on the state pension that the Government has confirmed is coming in soon. The new policy will require changes to UK law ahead of the new tax year starting April 2027.

Chancellor Rachel Reeves announced in the Autumn Budget 2025 that it will bring in a new policy to ensure that those on the state pension alone without increments will not have to pay income tax. The full new state pension is set to cross the personal allowance threshold from next April, meaning people on the state pension alone would have to pay income tax on their payments, under current rules.

In line with the personal allowance, you can currently earn £12,570 a year without paying income tax. But the full new state pension now pays £241.30 a week, or £12,547.60 a year, so is barely £50 away from using up the whole allowance.

The triple lock policy, which Labour has committed to for the rest of this Parliament, means state pension payments rise each April in line with whichever is highest of three measures: either inflation, the rise in average earnings or 2.5 per cent.

So the full new state pension will definitely cross the line and attract a tax bill after the April 2027 increase. The new tax exemption will affect hundreds of thousands of pensioners, but the details have yet to be set out about how it will work.

Hannah Martin, pensions expert and founder of Rich Retiree, said there are some key questions that still need to be answered. She said: "This plan is intended to ease the administrative and financial burden on pensioners.

"However, the Government still hasn't announced details on how it will work. There are a number of elements that still need to be defined. For example, how will HMRC identify eligible people?"

She said another ambiguity is how different groups will be treated. The expert pondered: "How will they treat people who have small amounts of income, for example earning as little as £1 interest on tiny savings accounts?

"What about people receiving the old state pension with a basic plus additional state pension? As they are not 'solely dependent' on the old basic pension, will they be included?"

The full basic state pension currently pays £184.90 a week, or £9,614.80 a year. However, many people on the older scheme get more than this, as you can get additional amounts depending on your situation.

The Government was recently asked for update on the new policy. An HM Treasury 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."