Key takeaways

  • The Pension Tax Allowance starts in April 2027. Pensioners with income up to the full new State Pension (£13,036.40 in 2027 to 2028) pay no income tax.
  • Around 500,000 pensioners benefit in 2027 to 2028, of whom about 290,000 pay no tax. The Treasury expects around 1 million by the end of this Parliament.
  • The triple lock will be adjusted from the next Parliament so the State Pension tracks earnings over time.
  • Unused pensions come into inheritance tax from 6 April 2027.
  • Savings and rental income are taxed at 24%, 44% and 49% from April 2027, but the cash ISA limit stays at £20,000.

Budget 2026 for pensioners combines one clear gain with several changes to watch. The gain is the Pension Tax Allowance, which stops people on the full new State Pension paying income tax from April 2027. The changes to watch are an adjusted triple lock, pensions coming into inheritance tax, and higher tax rates on savings and rental income.

The Pension Tax Allowance

From April 2027 the full new State Pension is worth more than the frozen £12,570 personal allowance. The Pension Tax Allowance stops that gap creating small tax bills. People over State Pension age whose total income is at or under the full new State Pension pay no income tax. For 2027 to 2028 the full new State Pension is £13,036.40 a year.

HMRC applies the allowance automatically using the State Pension age and income information it already holds. The Treasury says around 500,000 pensioners benefit in 2027 to 2028 and about 290,000 of them pay no tax because of it. By the end of this Parliament, around 1 million pensioners benefit. Our post on the Pension Tax Allowance has the taper, thresholds and worked examples.

The adjusted triple lock

The Budget document says the government will adjust the triple lock from the next Parliament. After the change, the State Pension will track earnings over time rather than rising ever higher relative to earnings. It describes the aim as a state pension that rises every year alongside free personal care and a National Care Service in England.

The Treasury estimates the adjustment reduces State Pension spending by £15 billion a year by the late 2030s and £50 billion by the late 2040s. The Prime Minister has agreed that Baroness Casey’s Independent Commission on Adult Social Care will now report in 2027. The Office for Budget Responsibility says the reform should significantly reduce the projected long-term cost of State Pension uprating.

Pensions and inheritance tax

Unused pension funds come into inheritance tax from 6 April 2027, and personal representatives will be able to direct pension schemes to pay the tax. The two-year rule on pension death benefits is removed for payments made on or after 28 October 2026. IHT thresholds are unchanged. Read our post on IHT, pensions and trusts for the technical changes.

Tax on savings and rental income

Pensioners who have savings or rental income are affected by the 2027 rates. Savings income and property income are taxed at 24%, 44% and 49% from 6 April 2027. The Pension Tax Allowance counts all income, including interest and rent, so a modest private pension plus rental income can take someone over the limit.

The cash ISA limit stays at £20,000, so interest held in cash ISAs remains tax-free. See the cash ISA limit post and our guide to savings and property income tax.

Energy bills support

The Budget also includes help with energy costs that applies to pensioner households:

  • a £100 Household Energy Payment from January 2027 for households in council tax bands A to D in England, supporting up to 20 million households
  • 0% VAT on household electricity extended to 30 June 2027
  • a share of that funding for the devolved governments through the Barnett formula

The payment is for households in England. See Budget 2026 in Scotland, Wales and Northern Ireland for what the devolved governments receive.

Pensioners by nation

The Treasury publishes separate estimates. By the end of this Parliament, around 93,000 low-income pensioners in Scotland, roughly 64,000 in Wales and roughly 40,000 in Northern Ireland will pay less tax or none on their income, because of the reduced administrative burden of small tax bills.

What advisers should do

  1. Calculate total income for pensioner clients. Include rent, interest and part-time earnings, not just pensions.
  2. Check clients near £13,037. Those between £13,037 and £13,319 get a partial allowance.
  3. Review estate plans. Unused pensions come into IHT from April 2027, so existing plans that relied on the exemption need testing.
  4. Check cash holdings. Interest above the allowances is taxed at the 2027 rates.
  5. Tell clients nothing needs claiming. HMRC applies the allowance automatically.

Frequently asked questions

Do pensioners pay income tax on the State Pension in 2027?

Not if their total income is no more than the full new State Pension, £13,036.40 in 2027 to 2028. The Pension Tax Allowance removes the tax.

Does the Pension Tax Allowance need to be claimed?

No. HMRC uses the State Pension age and income information it holds to apply it automatically.

What is changing for the triple lock?

The government will adjust it from the next Parliament, so the State Pension tracks earnings over time. The current arrangements apply until then.

Are pensions going into inheritance tax?

Yes, from 6 April 2027. Unused pension funds come into the scope of IHT, and the two-year rule on pension death benefits has gone for payments made on or after 28 October 2026.

Sources

Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance on 1 November 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.