New Pension Tax Allowance: Pensioners Who Will Stop Paying Tax On Their State Pension From April 2027
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From 6 April 2027, if you are over State Pension age and your total income from every source is £13,036.40 or less in the 2027/28 tax year, a new Pension Tax Allowance removes your income tax automatically. It is worth up to £94, tapers away above that income, and disappears completely at £13,318.40. You do not need to claim it.
The reason for the change is simple arithmetic. For the 2027/28 tax year, the full new State Pension is £13,036.40 a year (£250.70 a week), while the Personal Allowance, the amount of income you can have before paying any income tax, stays at £12,570 according to GOV.UK's Income Tax rates and Personal Allowances. Without help, everyone on the full new State Pension would have been pulled into tax for the first time, owing about £93 a year.
For comparison, in 2026/27 the full new State Pension is £241.30 a week, or £12,547.60 a year, which is still just under the Personal Allowance, according to the DWP's benefit and pension rates for 2026 to 2027. April 2027 is the point at which the State Pension alone first exceeds the tax-free amount.
What is the Pension Tax Allowance?
The Pension Tax Allowance (PTA) is a reduction in your income tax bill, worth 20% of the difference between the full new State Pension and the Personal Allowance, for people over State Pension age with low total incomes.
HM Treasury's Pension Tax Allowance explainer, published on 28 October 2026, sets the full allowance for 2027/28 at £94. That is £13,036.40 minus £12,570, which gives £466.40, multiplied by 20%, which gives £93.28, rounded up.
Three features shape everything else in this article:
● It is not an increase in your Personal Allowance. It is taken off the tax you would otherwise owe.
● It cannot create a refund. If your tax is £66, the allowance clears £66 and the rest is lost.
● It cannot be transferred to a husband, wife or civil partner.
The allowance applies for three tax years: 2027/28, 2028/29 and 2029/30, ending on 5 April 2030. It will rise each April in line with the full new State Pension. The government has said only that it will consider arrangements after April 2030 "in the usual way", so nothing beyond that date is settled.
Who will stop paying tax on their State Pension from April 2027?
HM Treasury estimates that about 500,000 pensioners will get a tax reduction from the Pension Tax Allowance in 2027/28, and about 290,000 of them will pay no income tax at all as a result. By the end of this Parliament it expects about 1 million pensioners to benefit. The Budget 2026 costing puts the measure at £45 million in 2027/28, rising to £150 million in 2029/30.
You benefit if all of these apply:
● you are over State Pension age, or reach it during the tax year;
● your total income for the tax year is above £12,570 (otherwise you pay no tax anyway); and
● your total income is below £13,318.40 in 2027/28.
The people who stop paying altogether fall into two groups. The first is anyone on the full new State Pension with no other taxable income. The second, and in practice the one most likely to be paying tax in 2026/27 already, is someone on the older basic State Pension plus some additional State Pension (often called SERPS or the State Second Pension) or a small workplace pension, where the total lands between £12,570 and £13,036.40.
You do not benefit if your total income is £13,318.40 or more, even if most of it is State Pension. The headline that "pensioners will not pay tax on their State Pension" is accurate only for pensioners whose whole income is at or below the State Pension level.
How does the taper work above £13,036.40?
The allowance falls by £1 for every £3 of total income above £13,036.40, so it reaches nil at £13,318.40. HM Treasury's explainer rounds that to £13,319.
These figures for 2027/28 assume non-Scottish rates and pension or employment income (property income is covered separately below).
Total income 2027/28 | Tax at 20% before the allowance | Pension Tax Allowance | Tax you pay |
£12,900 | £66.00 | £94.00 (only £66 used) | £0 |
£13,036.40 | £93.28 | £94.00 (only £93.28 used) | £0 |
£13,126.40 | £111.28 | £64.00 | £47.28 |
£13,336.40 | £153.28 | £0 | £153.28 |
The band between £13,036.40 and £13,318.40 is where the allowance behaves unusually. Each extra £1 of income costs 20p in ordinary tax plus 33p of lost allowance, an effective rate of about 53%. That is higher than the 40% higher rate, on an income of around £13,000.
Example: a pensioner in England has total income of exactly £13,036.40 in 2027/28 and is considering taking an extra £300 of taxable pension income in March 2028. Their tax goes from £0 to £153.28, so about 51% of that £300 goes in income tax. If the same £300 fell into a tax year where their total income had room below the limit, it would cost them nothing.
The video with this article works through the table above, step by step. Its conclusion is that the decision point is your total income for the whole tax year, and that timing a small extra payment across 5 April can matter more than its size.
Whether to draw pension money at all, and from which product, is a financial decision outside the scope of this article and needs a regulated financial adviser. The tax effect of the timing is the part covered here.
2027/28 Pension Tax Allowance Calculator & Taper Explorer
Use this interactive calculator to see exactly how the new £94 Pension Tax Allowance affects your income tax bill from 6 April 2027. Enter your expected State Pension, private pension, savings interest, or rental profit, and select your UK region, to view a real-time breakdown of your total income, remaining allowance, and final tax payable. You can also adjust the income sliders or switch between the preset scenarios to explore how the £1-for-£3 taper operates between £13,036.40 and £13,318.40, and how the 24% property tax rate or non-ISA savings interest impacts your entitlement.
What counts as total income, including income you pay no tax on?
The explainer states that total income means income regardless of source: State Pension, private and workplace pensions, wages, self-employed profit, rental profit, savings interest and dividends. Interest from an Individual Savings Account (ISA) does not count.
This produces an interaction most summaries leave out. Savings interest that is taxed at 0%, because it falls within the starting rate for savings (up to £5,000 in 2026/27, per HMRC's table of Income Tax rates and allowances) or the Personal Savings Allowance, still appears to count towards the income test.
Example: a pensioner has £13,000 of State and private pension in 2027/28 and £400 of bank interest. The interest itself is taxed at 0%. But total income is then £13,400, above £13,318.40, so the allowance is lost and £86 of tax is due on the pension income. Without the interest, the £86 would have been cleared by the allowance. On these figures, £400 of "tax-free" interest costs £86.
The same logic applies to deferred State Pension. The explainer confirms you can still qualify if you have deferred, but deferred amounts count as income in the year you receive them. A lump sum of deferred State Pension can take you straight past £13,318.40 for that year.
The exact legal definition of total income will be set out in Finance Bill 2026-27, which has not yet been published. My Tax Accountant's reading is that the treatment of 0% savings income is the point most worth checking when the draft legislation appears.
Pensioner landlords: why the allowance will not clear all your tax
From 6 April 2027, rental profit in England, Wales and Northern Ireland is taxed at a property basic rate of 24%, under Budget 2026 paragraph 6.246. The Pension Tax Allowance is still worked out at 20%.
Example: a pensioner landlord has £11,000 of State Pension and £2,036.40 of rental profit in 2027/28, a total of £13,036.40. The Personal Allowance is set against the pension first, so £466.40 of rental profit is taxable at 24%, giving £111.94. The £94 allowance reduces this to £17.94.
So a landlord whose total income is exactly at the State Pension level still pays a small amount, and must still file a Self Assessment return for the rental income. The higher rate is a separate change that deserves its own explanation; here it matters only because it stops the allowance clearing the bill.
How does it work in Scotland and Wales?
Scottish taxpayers receive the same Pension Tax Allowance, and the explainer states it is calculated at the 20% basic rate rather than the Scottish starter rate. Because the starter rate is lower (19% in 2026/27), Scottish tax at £13,036.40 is about £88.62, comfortably cleared by £94. Using the 19% rate, Scottish tax first exceeds the remaining allowance at a total income of about £13,047, and the allowance still runs out at £13,318.40. The Scottish rates for 2027/28 will be set in the Scottish Budget.
Welsh taxpayers pay the same basic rate as England and Northern Ireland, so the figures in this article apply to you unchanged.
How will HMRC apply it, and do you need to claim?
You do not need to claim. HMRC will apply the allowance automatically, using its records of your State Pension age and income, through whichever route already collects your tax:
● PAYE, through the tax code on a private pension or job;
● Self Assessment, if you file a return; or
● Simple Assessment, the tax calculation letter HMRC sends when your only taxable income is the State Pension or there is no PAYE source to collect tax through.
The explainer confirms that if the allowance removes all your tax, you should not receive a Simple Assessment for that year. It also says HMRC may adjust the allowance during the year or reconcile it after the year ends, and that you can contact HMRC if your income changes or the information it uses is wrong.
That last point matters more than it sounds. The allowance depends on HMRC estimating your total income correctly, including bank interest it often only learns about after the year ends. If your income is close to £13,036.40 or within the taper band, the in-year estimate and the final position can differ.
When is it worth having your figures checked?
If your only income is the State Pension, or the State Pension plus one small pension paid through PAYE, HMRC should get this right without help, and checking the tax code letter is usually enough.
A professional review earns its cost if you also have rental profit, self-employed income, a deferred State Pension lump sum, several savings accounts, or income that moves around £13,036.40 to £13,318.40. Those are the cases where the 24% property rate, the income test and the taper interact, and where a wrong estimate shows up only after the year ends.
For a Self Assessment return, My Tax Accountant checks that every source of income is included at the right figure, that the Personal Allowance and the Pension Tax Allowance are applied in the right order against your pension, rental and savings income, and that HMRC's calculation agrees with ours before the return is filed. We can also check a tax code notice or Simple Assessment letter against your actual income.
What to do now
Before 5 April 2027: nothing needs claiming. The allowance does not apply to 2026/27, so any tax due for 2026/27 is still due, by 31 January 2028 if you file Self Assessment.
When your 2027/28 tax code notice arrives (before or soon after 6 April 2027): check that the State Pension figure is £13,036.40 for the full new State Pension, or your own amount, and that your other income is estimated correctly.
During 2027/28: tell HMRC promptly if your income changes, for example a deferred State Pension lump sum, a new job, or rental income starting or stopping.
Before 5 April 2028: if your total income is close to £13,036.40, consider the timing of any optional extra taxable income across the year end.
After 5 April 2028: check any Simple Assessment or year-end calculation for 2027/28 against your own figures, and query it promptly if it is wrong. If you file Self Assessment, the 2027/28 return and payment are due by 31 January 2029.
FAQs
My spouse transfers Marriage Allowance to me. Do I still need it from April 2027?
It depends on your income. If your total income is £13,036.40 or less, the Pension Tax Allowance alone clears your tax, so the transfer adds nothing for you, because neither relief can create a refund. If your income is £13,318.40 or more, the Pension Tax Allowance gives you nothing and Marriage Allowance still reduces your bill. The GOV.UK Marriage Allowance guidance sets out who can transfer and how to cancel.
Will the Pension Tax Allowance affect my Pension Credit or Housing Benefit?
It can. HM Treasury's explainer says that if a benefit is means-tested, receiving the Pension Tax Allowance may affect your entitlement, because paying less tax raises your net income. In some cases part of the gain is offset by a lower benefit award, so check with the body paying the benefit if your income is close to its limits.
I reach State Pension age in the middle of the 2027/28 tax year. Do I qualify?
Yes. The explainer says the allowance applies to people who are over State Pension age or reach it during the tax year. It does not describe any reduction for reaching State Pension age part-way through the year, and your total income for the whole year, including any earnings before your birthday, is what is tested.
Does it matter if I am still working past State Pension age?
Your wages count towards total income in the same way as pension income, so part-time earnings can take you past £13,036.40 and into the taper. The allowance is applied through your PAYE code if you are employed. You stop paying Class 1 National Insurance once you pass State Pension age, but that is separate from the Pension Tax Allowance.
What happens after 5 April 2030?
The allowance is legislated only for 2027/28, 2028/29 and 2029/30. The government has said it will consider arrangements beyond April 2030 in the usual way, which means no decision has yet been announced. From April 2030 the State Pension will also rise under an adjusted Triple Lock, so whether the State Pension then sits above the Personal Allowance will depend on decisions not yet made.
My partner and I both get the State Pension. Do we each get the allowance?
Yes. The Pension Tax Allowance is given to each person separately and each of you is tested on your own total income, not your joint income. If one of you does not need all of it, the unused part cannot be passed to the other.
About the Author
Maz Zaheer, AFA, MAAT, MBA, is the CEO and Chief Accountant of MTA and Total Tax Accountants, two premier UK tax advisory firms. With over 15 years of expertise in UK taxation, Maz provides authoritative guidance to individuals, SMEs, and corporations on complex tax issues. As a Tax Accountant and an accomplished tax writer, he is renowned for breaking down intricate tax concepts into clear, accessible content. His insights equip UK taxpayers with the knowledge and confidence to manage their financial obligations effectively.
Disclaimer:
This article explains the general position for the 2026/27 tax year and is accurate at the date of publication. Tax outcomes depend on individual circumstances, and rules change. It is not advice for your situation. For guidance on your own position, speak to a qualified accountant or tax adviser. My Tax Accountant accepts no liability for action taken solely on the basis of this article.
