Chancellor Introduces New Pension Tax Allowance
Move aims to prevent state pensioners from paying income tax, as government considers future of 'triple lock' guarantee.
Carla Rooney
The Chancellor plans a new Pension Tax Allowance of £13,036 for pensioners.
The personal tax-free allowance froze in 2021. This action had set those on just the full new state pension to pay income tax for the first time from next April, as the annual amount would breach the £12,570 income tax threshold.
The Treasury calculates the Pension Tax Allowance by applying the basic rate of income tax, 20 percent, to the difference between the full new state pension and the personal allowance. Individuals over state pension age qualify for the automatic tax deduction if their income, regardless of source, is below or at the value of the full new state pension.
For those with incomes just above the full new state pension, the allowance will gradually withdraw through a taper. The tax-free allowance will rise in line with state pension increases for the remainder of this parliament.
Chancellor John Healey announced the tax-free allowance for low-income pensioners will rise to the new state pension level. Mr. Healey claims he will raise the tax-free income allowance to £13,036 for low-income pensioners only.
Rachel Reeves previously committed to ensuring pensioners with only the state pension as income would not pay income tax on it. This move will cost taxpayers £200 million a year by 2030.
The “triple lock” guarantees the state pension rises by whichever is highest of inflation, average wage growth, or 2.5 percent. Inflation rose to 3.5 percent in September, the highest level in nearly a year.
The Government indicated that The Government today confirmed plans to ditch the state pension triple lock in favor of a double lock if it wins the next election. The Prime Minister has pledged to put changes aimed at having less generous annual increases to voters ahead of the next general election.
The Government today confirmed plans to ditch the state pension triple lock in favor of a double lock if it wins the next election. The Prime Minister has pledged to put changes aimed at having less generous annual increases to voters ahead of the next general election.