State pensioners told 'it's likely to count' over tax changes announced in Budget

State pensioners told 'it's likely to count' over tax changes announced in Budget You may want to check over your finances to see how your tax bill will be impacted Share Article Share Article Facebook X LinkedIn Reddit Bluesky Email Copy Link Link copied Add us as preferred source Comments By Nicholas Dawson , Finance Reporter 05:30, Thu, Nov 5, 2026 A new tax allowance is coming in for state pensioners (Image: Getty) A tax expert has explained how a new tax-free allowance for state pensioners will work .

He said the policy could cause "potential difficulty" as some elements of the policy have yet to be set out by HMRC. As the full new state pension will rise above the £12,570 a year personal allowance from next April, the Government announced at the new Budget it will introduce a new Pension Tax Allowance . This purpose of this it ensure those on the full new state pension will not have to pay income tax on their payments. Article continues below ADVERTISEMENT New allowance rules The new allowance will add an extra tax-free allowance on top of the personal allowance for anyone of state pension age, in line with the full new state pension.

This will mean from April 2027, you can earn up to £13,037 a year and not pay tax, saving you £94 if you get this full allowance. However, the allowance tapers away, reducing by £1 for every £3 you earn above £13,319, reducing to zero once your income reaches £13,319 - so anyone on this income or above will just get the standard £12,570 allowance. Tim Grimsditch, managing director at financial advice group Unbiased , said the aim of the policy is sound, but it does risk making the tax landscape even more tricky to navigate.

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You can unsubscribe at any time. More Info . He said: "Protecting pensioners on modest incomes from small tax bills as the state pension rises is a sensible aim. The trade-off is that it adds another calculation to a system many people already find difficult to follow, so clear explanation will matter." Article continues below ADVERTISEMENT One perk is that HMRC will apply the new allowance automatically so as long as they have the right details for you, it should be applied correctly.

Mr Grimsditch pointed to some aspects that could lead to inaccuracies. Article continues below ADVERTISEMENT Potential issues He said: "The main potential difficulty is bringing together income from several sources, particularly where amounts change during the year. savings interest is income, so it's likely to count towards eligibility even where it's covered by the personal savings allowance. The detail will be confirmed in legislation.

"That could confuse people who reasonably assume that interest attracting no tax cannot affect another tax reduction." You can earn up to £1,000 in savings interest each tax year without paying tax on this amount. For low earners, you also get a starter rate for savings. This is an extra £5,000 of interest you can earn each year above the £12,570 personal allowance. You can also deposit up to £20,000 into ISAs, which are entirely tax-free.

It reduces by £1 for each £1 of income you earn above the personal allowance, so it disappears entirely once your income reaches £17,570. Ed Miliband just went haywire again – this could spell curtains for Andy Burnham State pensioners handed £208 cash boost on top of state pension 'Clear explanations' needed The expert said the fact the allowance tapers off could cause confusion. He said: "The reduction also tapers as income rises. Clear explanations will be essential so people understand why a relatively small change in income could alter their entitlement.

"Automatic administration is helpful, but it still depends on the information behind the calculation being correct." Although the new allowance will be applied automatically, it's still a good idea to keep your finances in order. Mr Grimsditch said: "Pensioners should keep records of their income and check any tax calculations or coding notices against those records. If HMRC has used incorrect figures, or circumstances change, they should contact HMRC.

"Existing tax bills should not be ignored on the assumption that this announcement cancels them. Anyone unsure about a calculation should seek clarification before making financial decisions based on the new rules." 'Higher tax' coming in He said there is another change to be aware of when it comes to your tax liabilities: "This also lands alongside other changes from April 2027, including higher tax on savings interest. Because these changes affect each other, it helps to look at income and savings together, and a professional financial adviser can help with that."

The tax rate that applies your taxable interest earnings is increasing by four percentage points across each tax band. This means these new rates will apply from April 2027: Basic rate taxpayers - 24 per cent rate on taxable interest earnings Higher rate - 44 per cent Additional rate - 49 per cent. See more of the stories you love from Daily Express and find us easily in Google by making us a Preferred Source. Free and easy-to-do, just click here to activate or add us as Preferred Source in your Google search settings.

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