Make State Pensions tax free

As the personal tax allowance has been frozen, some pensioners will now need to fill in tax return. We believe income from State Pensions should be tax free, in the same way as benefits are.

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Government Response

Monday 29th January 2024

The Personal Allowance is set at a level high enough to ensure that pensioners whose sole income is the new or basic State Pension do not pay income tax.

The Government is committed to ensuring that older people are able to live with the dignity and respect they deserve.

Income earned through employment is taxable. In general, benefits that are designed to replace income are taxable and the same applies to income from the State Pension.

Income tax is due on an individual’s total income above the Personal Allowance (PA), currently £12,570. Total income could include: the State Pension (the basic State Pension, the new State Pension, and the Additional State Pension); other taxable benefits; a private pension (workplace or personal); or any other income, such as money from investments, property, or savings.

The Personal Allowance (PA) is currently set at a level high enough to ensure that those pensioners whose sole income is the new State Pension or basic State Pension, and who have not previously deferred their State Pension or receive protected payments, do not pay income tax.

The Government has nearly doubled the income tax PA since 2010 (30% higher in real terms), ensuring some of the lowest earners do not pay income tax. If the PA had been uprated by inflation every year since 2010-11, it would be £9,655 in 2023-24, which is £2,915 lower than its current level of £12,570. Due to the PA, around 30 percent of individuals do not pay tax.

Removing income tax from the State Pension would add complexity to the tax system and those paying higher rates of tax would receive the greatest benefit. Lower-earning individuals with income below the higher rate threshold would benefit less and those earning below the PA would not benefit at all.

In April 2023, the Government increased the State Pension by 10.1 per cent, in line with inflation and the highest element of the Triple Lock. This delivered the biggest ever cash increase in the State Pension.

Beyond the State Pension, pensioners can also benefit from Winter Fuel Payments, which are £200 per household if the oldest person is less than 80 years old, or £300 per household if they are above 80. Pensioners are also able to benefit from free eye tests; NHS prescriptions; and free bus passes.

Some pensioners may also qualify for means tested benefits including Pension Credit and Housing Benefit. Pensioners have also benefitted from recent support with the cost of living, including a £300 Cost of Living Payment to over 8 million pensioner households for both the winter of 2022 and 2023 in addition to universal energy support.

The Government keeps all aspects of the tax system under review and any decisions on future changes will be taken by the Chancellor in the context of the wider public finances.

HM Treasury

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