Hundreds of thousands of retirees across the UK have received a significant financial and administrative reprieve from the Labour government. Chancellor Rachel Reeves has announced that individuals whose only source of income is the basic or new state pension will not have to pay income tax or complete a tax return, even if their pension payment exceeds the personal tax-free allowance.
The Chancellor's Key Announcement
This crucial policy shift was detailed in the full Budget 2025 document. The government stated it aims to "ease the administrative burden for pensioners" who rely solely on the state pension, ensuring they do not face small tax bills from the 2027/28 tax year onwards. This protection is set to last until the end of the current parliament, which is likely to be in 2029.
The move directly addresses a looming issue forecast by financial experts. With the state pension rising under the triple lock mechanism and the personal allowance frozen until 2027/28, the full new state pension was projected to surpass the tax-free threshold by April 2027. This would have, for the first time, rendered some pensioners liable for income tax based purely on their state pension income.
Who Benefits and Who Might Still Pay?
The tax waiver applies specifically to pensioners with "no other taxable income." This means retirees who have modest private pensions, savings interest above the savings allowance, or any other earnings will not be covered by the new rule and may still face an income tax bill if their total income exceeds £12,570.
Chancellor Reeves confirmed the policy after being questioned by MoneySavingExpert founder Martin Lewis. She stated unequivocally that individuals whose sole income is the state pension will not be required to complete a tax return or pay tax during this parliamentary term. The government is now exploring the best method to implement this change and will provide further details next year.
The Wider Tax Landscape for Pensioners
This announcement comes against the backdrop of frozen income tax thresholds. For the 2025/26 tax year, the personal allowance remains at £12,570, with thresholds for basic, higher, and additional rates frozen until 2027/28. This fiscal drag is pulling more taxpayers into higher brackets.
The government's decision represents a delicate political balance. As noted by analysts, permanently raising the frozen personal allowance would cost billions, while scaling back the triple lock on pensions is seen as politically risky. This targeted measure offers a solution for the most financially vulnerable pensioners while managing Treasury costs.
For now, retirees dependent entirely on the state pension can breathe a sigh of relief, avoiding the prospect of navigating self-assessment for potentially tiny tax liabilities. However, those with additional income streams are advised to continue monitoring their tax position closely as the frozen thresholds remain in effect.
