State pension ‘continued assessment’ alert over new tax guidelines
New legislation will go before MPs to bring in the new HMRC rules
State pension payments increase in April(Image: Getty)
State pensioners might want to look over their tax arrangements as some significant changes are approaching. HMRC previously said that fresh legislation will be required to implement the tax changes which will affect certain claimants.
The Government outlined at the Autumn Budget 2025 that it would introduce a new tax exemption for particular state pensioners. The fresh policy will guarantee that those whose sole income is the state pension without any additional amounts will not pay income tax on their payments. The full new state pension is expected to exceed the personal allowance threshold from next April. This means under existing regulations some people whose only income is the state pension would be required to pay income tax on their payments.
Every person can earn up to £12,570 annually without paying income tax, in accordance with the personal allowance. However, the full new state pension is now extremely close to exhausting this entire allowance.
Tax bill approaching for state pensioners
The full new rate currently stands at £241.30 weekly, or £12,547.60 annually, so is barely £50 short of consuming the entire allowance and triggering a tax bill. Next April’s payment increase will certainly push the full new state pension beyond the threshold, thanks to the triple lock pledge.
This Government commitment guarantees state pensions increase each April in accordance with whichever turns out to be the largest of three benchmarks: either inflation, the growth in average earnings or 2.5 per cent.
While the Government has revealed the new tax policy is coming in, ministers are yet to outline the specific details regarding how it will operate. HMRC officials previously said that fresh legislation would need to be put before Parliament to implement the changes.
‘Continued review’
Rowan Harding, financial planner at wealth management firm Path Financial how the new policy might be brought in. She said: “State pension is already paid to individuals with no income tax deduction.
“Generally a tax code adjustment or a self assessment is used as the method for collecting the correct amount of income tax. We would expect these methods would continue to be used and factor in the accurate identification of individuals who only receive a state pension income and no other taxable income.”
She noted a crucial thing the Government will need to decide is how to identify people whose sole income is the state pension without increments. Ms Harding stated that there will need to be some form of “continued review” each tax year as who exactly is in this group will change.
Check your tax details
The finance expert discussed what aspects of their finances state pensioners should regularly check over, to ensure they are paying the correct amount of tax.
She encouraged claimants to monitor:
- Your tax code
- All sources of income levels and guaranteed increases
- Where sources of income can be varied, are they set at the appropriate level
- Your expenditure needs and future budgeting.
Treasury statement
The Government was recently asked to provide an update on the new tax policy. A spokesperson for HM Treasury responded: “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.”
The department said that work is going on to enact the policy.
