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Chancellor: Pensioners Won’t Pay Tax When State Pension Breaches Threshold in 2027

ended 28. November 2025

The Chancellor, Rachel Reeves, has announced that pensioners who solely rely on their State Pension for their income will not need to fill in a tax return - or pay tax at all - when the State Pension crosses the threshold where Basic rate tax becomes due in April 2027/28.

Speaking to Martin Lewis the day after the Budget was announced, Rachel Reeves responded to a question: “Will my 85 year old father, who's living with dementia now have to complete a tax return as his State Pension will take him over the personal allowance?”

She replied: “If you just have a State Pension, you don't have any other pension, we are not going to make you fill in a tax return.”

Pressed on whether this meant there would be no tax to pay, the Chancellor confirmed:  “In this parliament, they won't have to pay the tax.” 

She added: “We're working on a solution as we speak to ensure we're not going after tiny amounts of money… we're coming up with a workaround.”

Questions:

  • Can you foresee any problems with how this will be implemented? 
  • What questions would you put to the Chancellor on how this will work, and any complications you can see arising? What about when people defer taking their State Pension, taking a lump sum at a later date? That won't necessarily be “tiny amounts of tax”.
  • Will it be seen as unfair by those under pension age who are paying income tax?
  • The Chancellor said she cannot commit to this remaining the policy beyond the end of this parliament. What do you think could happen in the future?

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Editor
Antonia Medlicott
Founder & MD at Investing Insiders
The only reason the country is now faced with this problem is that tax thresholds have been frozen for far too long.

The announcement in the Budget that they will continue to be frozen for a further three years until 2031, means that millions more people will be pulled into paying tax, or higher rates of tax, even though, technically, income tax hasn't actually been raised.

The fact that the triple-lock is now set to collide with these frozen thresholds in 2027, tells you everything about how unsustainable it has become. This workaround that the Chancellor has announced will no doubt be a welcome relief to hundreds of thousands of the least well-off pensioners. But it creates administration and expense for the government, and there will almost certainly be errors which will still cause considerable stress to elderly people on very tight budgets who simply don't need it.