Key takeaways
- From 6 April 2027, people over State Pension age with total income up to the full new State Pension, £13,036.40 in 2027-28, will pay no income tax.
- The allowance is a tax reduction worth up to about £94, worked out at 20% of the gap between the full new State Pension and the £12,570 personal allowance.
- It tapers away at £1 for every £3 of income above £13,037 and disappears at £13,319.
- All income counts, including earnings, private pensions, savings and rent. HMRC applies it automatically, with no claim needed.
- It runs for 2027-28 to 2029-30. The personal allowance itself is unchanged.
From 2027-28 the full new State Pension will be worth more than the frozen personal allowance, which would have brought hundreds of thousands of pensioners into paying small amounts of income tax for the first time. The Pension Tax Allowance, confirmed in Budget 2026, stops that. Anyone over State Pension age whose total income is no more than the full new State Pension will pay no income tax, and those just above it pay a little less. HMRC applies it automatically.
How the allowance works
The Treasury’s explainer and the overview of tax legislation set out the mechanics:
- the allowance is a tax reduction, not an increase in the personal allowance
- its value is the basic rate of 20% applied to the difference between the full new State Pension and the personal allowance
- it is available to people above State Pension age, or who reach it during the tax year
- it is based on total income from all sources
- it is withdrawn at £1 for every £3 of income above the full new State Pension
- it applies for 2027-28, 2028-29 and 2029-30, and will be uprated with the full new State Pension
For 2027-28 the full new State Pension is £13,036.40 a year. Annex A sets the thresholds:
| Total income in 2027-28 | Result |
|---|---|
| Up to £12,570 | No tax, covered by the personal allowance |
| £12,570 to £13,037 | Full Pension Tax Allowance, so no tax to pay (worth up to about £94) |
| £13,037 to £13,319 | Partial allowance, so less tax than otherwise |
| £13,319 or more | No Pension Tax Allowance |
Examples from the Treasury’s explainer
- Full new State Pension only. Steph’s only income is £13,036.40. Without the allowance she would owe £93.28. The full allowance removes it.
- Partial State Pension and a small private pension. Anne’s total income is £12,970, so she would owe £80. Because her income is below the full new State Pension, the allowance removes it.
- Just above the threshold. Jonathan has deferred his State Pension and has £13,186.40 of salary and property income. He is in the taper range, so his allowance is £44 and his tax falls by that amount.
- Above the limit. Nadia has £13,400 of private pension and savings income. She gets no allowance and pays £166, but is still better off in cash terms than someone on £13,036.40.
Who benefits
The explainer says around 500,000 pensioners will benefit in 2027-28, of whom around 290,000 will pay no tax at all because of it, rising to around 1 million by the end of this Parliament. The Chancellor told the Commons that pensioners with income up to the value of the full new State Pension “will not pay Income Tax in this Parliament”.
Points for accountants
Total income means all income. The explainer lists the new and old State Pension, additional State Pension and increments, occupational and private pensions, part-time employment and self-employment, rental income, interest and dividends (other than ISA income) and some earnings-replacement benefits. A client with a modest pension and some buy-to-let income may be just over the line.
No claim is needed. HMRC will use the information it holds on State Pension age and income to apply the allowance automatically. The aim is to spare these people Simple Assessment bills for small amounts.
The personal allowance does not change. The explainer confirms the Pension Tax Allowance does not alter the personal allowance, so marriage allowance and other calculations that depend on it are unaffected.
Other allowances come first. Savings, dividend and property income still benefit from their own tax-free allowances, which are applied before the reduction.
It is time-limited for now. The allowance runs to 5 April 2030, and the government will consider arrangements beyond that “in the usual way”. Clients should not assume their State Pension is permanently tax-free.
For the related changes to pensions and inheritance tax, see IHT, pensions and trusts in Budget 2026. Our guide to the personal allowance explains the underlying rules.
Frequently asked questions
Who qualifies for the Pension Tax Allowance?
People above State Pension age, or who reach it during the tax year, whose total income is up to and including the full new State Pension (£13,036.40 in 2027-28). Those with income up to £13,319 get a partial reduction.
Do I need to claim the Pension Tax Allowance?
No. HMRC will apply it automatically using the information it holds about your State Pension age and income.
Does the Pension Tax Allowance make the State Pension tax-free?
No. The State Pension remains taxable income. The allowance is a tax reduction for people on lower total incomes, available for 2027-28 to 2029-30.
Do I need to receive the State Pension to benefit?
No. Eligibility depends on age and total income, not on whether you receive the State Pension.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance on 28 October 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.