A significant update from HMRC is set to impact how the state pension is taxed starting in the 2027/28 tax year, and for many pensioners, it’s welcome news. During the Autumn Budget, the Government confirmed that retirees who rely solely on the state pension will no longer be required to file self assessment tax returns, even if their income creeps over the standard tax-free threshold.
While the full details of how this will work are still to come, the aim is clear: to spare low-income pensioners from paperwork and potential stress, especially as state pension increases continue to push some recipients toward the taxable income limit.
Background
Thanks to the triple lock, the full new state pension is set to rise by 4.8% in April 2026, increasing from £230.25 per week to £241.30, or £12,547.60 per year. That figure falls just slightly below the personal tax allowance of £12,570 — the point at which income tax begins to apply.
But here’s the issue: with even a small 2.5% rise under the triple lock in April 2027, the state pension would exceed the personal allowance, meaning people relying solely on this income would technically owe a small amount of tax.
Rather than forcing millions of pensioners to register for self assessment and deal with HMRC directly, the Government now plans to shield them from this process.
What’s Changing?
From 2027/28, pensioners whose only income is the state pension will not need to file a self assessment return, even if their pension income edges slightly above the personal allowance.
This change aims to:
- Prevent unnecessary tax filings for people with simple finances
- Reduce confusion and stress among older or vulnerable pensioners
- Avoid creating a scenario where the Government gives pension increases with one hand and takes tax with the other
According to the Budget documents, more details on how this system will work are expected sometime in 2026.
Why It Matters
As pension payments rise each year under the triple lock, they get closer to or above the personal tax allowance, triggering tax obligations for people who have no other source of income.
Without this change, many pensioners would receive letters from HMRC telling them they need to complete a tax return for what might only be a small tax bill — sometimes just a few pounds. While the amount may be minor, the process can feel overwhelming for people unfamiliar with the tax system.
Steven Cameron, pensions director at Aegon, said this move could avoid unnecessary anxiety. He pointed out that many pensioners might not have a savings buffer to cover any tax bill, and a sudden tax request from HMRC could cause real distress.
He added that if the tax were to be collected automatically, it might require new technology to allow DWP and HMRC to exchange data in real-time — a potentially expensive and complex system to introduce.
Fairness Debate
While the move is seen as a win for lower-income pensioners, it has sparked debate about fairness. Some retirees who receive both a state pension and a private or workplace pension feel the policy creates an imbalance.
Two pensioners could receive the same total income, but the one with a mix of private and state pension would pay tax, while the one with just a state pension would not.
There’s also a broader question about equity between working-age individuals and pensioners. People still in work begin paying income tax once they earn above the same personal allowance — and many may wonder why state pensioners should be treated differently if their income exceeds that level.
What’s Next?
The Government has confirmed that more detail will be provided in 2026 about how this exemption will be applied in practice. At this stage, it’s unclear whether the personal allowance will rise to stay ahead of the state pension, or if some technical exemption will be introduced to keep pensioners out of the tax net.
One thing is certain: pensioners who rely solely on their state pension can breathe a little easier knowing they won’t face new tax forms in 2027 just for receiving a standard pension increase.
Until more detail is published, it’s a good time to:
- Review your income and check whether you rely solely on the state pension
- Check future pension estimates to see if your payments are likely to rise above the tax-free threshold
- Keep up to date with announcements from HMRC and the DWP in 2026
For now, it seems the Government has decided that simplicity — and avoiding stress for older citizens — should take priority over small-scale tax collection.
FAQs
Will state pensions be taxed in 2027?
Only if it’s your sole income, you’ll be exempt from self assessment.
Why is the pension tax threshold an issue?
Pension increases may push income above the £12,570 tax limit.
Do I need to file a tax return for state pension?
From 2027, no, if it’s your only income source.
Will this change apply to all pensioners?
Only those with no other income apart from the state pension.
When will more details be shared?
The Government will give more information in 2026.
