Chancellor Rachel Reeves provided an update about state pension changes
Chancellor Rachel Reeves provided an update about state pension changes
State pensioners could get a surprise tax bill from HMRC. An MP has warned that some recipients may be completely unaware they’ll shortly be required to complete a HMRC form to settle an outstanding bill.
The development comes after Dr Luke Evans, MP for Bosworth, recently questioned Chancellor Rachel Reeves regarding the matter of the increasing numbers of state pensioners being drawn into paying income tax. As the Chancellor set out her Spring Statement, Dr Evans asked the Chancellor: “I want to raise the issue of the freezing of thresholds and the effect on the state pension.
“When the Chancellor did it in her Budget, she told Martin Lewis that some people would be pulled into paying tax and won’t have to pay small amounts of tax and won’t have to do a tax return. The updated [OBR] forecast now says this year 600,000 pensioners will be drawn into paying tax, and going up to a one million by the end of this Parliament.
“Could she set out what the definition is of small amounts of tax and what the mechanism is she will use to make sure they don’t have to do a tax return?” This concerns a fresh policy unveiled in the Autumn Budget 2025.
The Government announced it would implement measures to ensure individuals “whose sole income is the basic or new state pension without any increments…do not have to pay small amounts of tax via simple assessment from 2027-28 if the new or basic state pension exceeds the personal allowance from that point”.
State Pensioners to face major tax change
By April 2027, the full new state pension will consume the entire £12,570 personal allowance threshold and begin incurring tax on your payments. The personal allowance permits earnings up to £12,570 annually without having to pay income tax, with the full new state pension currently providing £230.25 weekly, equating to £11,973 per year.
With state pension payments increasing by 4.8 per cent this April under the triple lock mechanism, more pensioners with other income sources, such as private pensions, will breach the income tax threshold. Those whose only income is the full new state pension face paying income tax from April 2027.
Responding to Dr Evans’ enquiry, Ms Reeves said: “As I said after the Budget last year, if you just get the basic state pension you will not be paying tax. We will be setting out more details of that in the coming months.”
An unwelcome tax bill
Dr Evans has now renewed his appeal for the Government to clarify how the new tax policy will work. The Conservative MP said: “Many pensioners simply do not realise they could soon be paying tax on their state pension. For some, being dragged into filling out tax returns will come as a huge and unwelcome shock.
“The Chancellor needs to urgently explain how she plans to prevent this.” He spoke about the impact of the issue on residents in his Leicestershire constituency.
The MP said: “I’ve spoken to pensioners in my constituency who understand the impact of freezing the threshold, but I fear many others, including some of the most vulnerable, have no idea this is coming. Worst still, with all the policy kite flying before the Budget, many took out their pension as a lump sum to avoid a tax which never materialised.
“Rachel Reeves herself has said she does not want pensioners who rely solely on the state pension paying ‘tiny amounts of tax’ and that the Government is ‘working on a solution’. Yet that was in November – it is now March, and the Government’s own analysis shows 600,000 pensioners are on the hook. It’s time the Treasury set out exactly what that solution is, urgently.”
HMRC update on new tax policy
Senior figures from HMRC were questioned by the Treasury Committee in January 2026 regarding the implementation of the tax changes. Cerys McDonald, director of Individuals Policy at HMRC, said that between 800,000 and a million pensioners rely solely on the state pension as their income.
She explained that fresh legislation would need to be introduced to facilitate the change. Ms McDonald said: “We would expect this to go through the next finance bill in the Autumn but we have mobilised a project team already in anticipation of having to make this change. The mitigation that we would normally use to recover this tax is simple assessment, normally we wouldn’t be processing that for 2027/2028 until after the 2028 tax year, so we’ve got a decent run in here.”
