TREASURY SETS PENSION TAX RELIEF LIMIT AT £13,319

Chancellor John Healey announced a Pension Tax Allowance in the Budget that the Treasury says will shield some state pensioners from income tax when their income exceeds the £12,570 personal allowance. The Treasury says the measure will raise the effective tax-free limit for eligible pensioners to £13,037, the rounded value of the full new State Pension from April 2027. It says pensioners with income at or below that level could save up to £94 in tax. The allowance will cover people receiving either the pre-2016 or post-2016 State Pension.

The government says the allowance will apply to qualifying income from pensions, work and savings. Treasury guidance also includes property income and Additional Pension. For pensioners whose income exceeds £13,037, the tax benefit will taper until income reaches £13,319, according to the guidance. The personal allowance remains frozen at £12,570, leaving a gap between that threshold and the value of the full new State Pension. The government says its measure will prevent pensioners whose income does not exceed the full new State Pension from paying tax solely because of pension increases during this Parliament.

Budget documents say the allowance will run from 6 April 2027 to 5 April 2030 and rise in line with the full new State Pension over that period. The government says it will apply the allowance automatically, without requiring pensioners to make a claim. Former pensions minister Steve Webb said: “If your state and private pension is under the new state pension rate of £13,037, you won’t pay any tax next year.” The Treasury says the measure extends the tax benefit to older pensioners receiving the pre-2016 State Pension.