The full state pension rate is set to overtake the personal allowance, the point at which someone starts paying tax, in 2027, and it will come within just a few pounds of it from next April
People with modest private pensions could soon face income tax bills under new regulations. The full state pension rate is poised to exceed the personal allowance – the threshold where tax payments begin – by 2027, coming within mere pounds of it from next April.
This leaves millions of retirees confronting a potential HMRC tax assault. Elderly Brits whose only income comes from the state pension will shortly discover themselves liable to pay, unless ministers opt to alter the regulations. It also means those holding modest private pensions or additional income sources are at risk of taxation, reports Birmingham Live.
Tax thresholds have remained static since 2021, whilst during this period the state pension has risen annually according to the triple lock mechanism, drawing increasingly closer to the £12,570 limit. The complete state pension will rise to merely £22 beneath this boundary from April.
The static thresholds mean increasing numbers are pulled into elevated tax brackets annually.
Critics argue this constitutes a ‘hidden tax’ as growing numbers are compelled to pay yearly without any formal declaration of tax increases.
Ministers are expected to face mounting pressure to lift tax thresholds, although this would represent an enormously expensive decision.
A representative for financial experts Spencer Churchill Claims Advice stated: “If the triple lock remains in place, it is highly likely that by April 2027 the full state pension will actually surpass the personal allowance threshold.
“That would mean some pensioners paying income tax purely on their state pension, something the Government will find politically difficult to justify. The Government faces a difficult balancing act.
“Removing the freeze on the personal allowance would cost billions at a time when fiscal headroom is already limited, yet scaling back the triple lock risks alienating older voters before the next election.”
