7 hours Ago By [email protected] (Linda Howard)
Liberal Democrat MP Ben Maguire has urged Chancellor Rachel Reeves to make an assessment of the potential merits of increasing the tax allowance for people over State Pension age to £15,000. The Personal Allowance will be frozen at £12,570 until the start of the 2028/29 financial year. In a written response on Friday, Treasury Minister James Murray MP explained how the UK Government “is committed to keeping taxes as low as possible for pensioners while ensuring fiscal responsibility”, but did not respond directly to the proposal for an assessment on increasing the income tax threshold.
Mr Murray said: “The Government is committed to keeping taxes as low as possible for pensioners while ensuring fiscal responsibility, which is why it is not extending the freeze on personal tax thresholds that was implemented by the previous government, and is instead allowing them to rise with inflation from April 2028. “At Autumn Budget, the Government announced that the basic and new State Pension will increase by 4.1 per cent from April 2025.
This means those on a full new State Pension will receive an additional £470 a year.” The full New State Pension is currently worth £11,502 in the 2024/25 tax year and will rise to £11,973 in 2025/26. This leaves just £1,068 in the current year before the tax threshold is exceeded and £597 in 2025/26.
The most important thing to remember is that someone on the full New State Pension will not pay income tax, but older people with additional income through employment, private or workplace pensions, might need to pay tax. For most people, this would be paid automatically through PAYE on employment and tax on private pensions. Anyone who doesn’t pay tax automatically pays tax through deductions, would receive a tax bill from HMRC the following summer to be paid by January in the next year.
There has been a fair bit of speculation on the number of pensioners who will pay tax, but currently of the 12.9 million State Pensioners across the UK, nearly 8m (62%) already pay some tax in retirement, so this isn’t something new. And with auto-enrolment in the workplace - now in its 13th year - more people will benefit from increased income in retirement and will probably pay tax - which will typically be deducted from their private pension.
It's important to understand any tax to be paid in retirement is based on the amount of income earned above the threshold - not the total additional income. For example, if someone has a total annual income of £13,000, they will pay tax on £430 - which is the amount above the £12,570 threshold. Those affected would then have to pay HMRC 19 per cent of their income above the threshold, which is the starter rate of tax in Scotland (20% in England).
Income rates and bands - Scotland Income rates and bands - England The DWP will publish the full list of State Pension and benefit uprated payments shortly, so far they have only confirmed the New and Basic State Pension rates, not additional elements (which are rising by 1.7%). Full New State Pension Full Basic State Pension To check your own future State Pension payments, use the online forecasting tool on GOV.
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