The Chancellor has set out new tax details affecting older households
The Chancellor, Rachel Reeves, has provided a firm confirmation regarding the tax status of low-income pensioners, alleviating concerns that they would be forced to pay income tax from 2027.
She explicitly stated that individuals whose sole income is the state pension will not have to pay income tax, despite the general impact of frozen tax bands.
This announcement seeks to quieten public and political pressure over the potential tax burden on the poorest retirees.
READ MORE: Rachel Reeves announces cash ISA ‘bonus’ for state pensioners
Get our best money saving tips and hacks by signing up to our newsletter
- Tax Payment Risk: Low-income state pensioners were facing the prospect of being forced to pay income tax from the year 2027.This was a consequence of the frozen tax bands, which do not keep pace with the annual increases in the State Pension.
- Personal Allowance Limit: The full State Pension payment has been steadily creeping ever closer to the personal allowance limit of £12,570.This personal allowance limit is the precise point at which a person officially starts paying standard income tax.
- Political Pressure: This challenging situation intensified the political pressure facing the Government, particularly after the Chancellor confirmed the extension of frozen bands in the recent Budget.The frozen bands are designed to raise tax revenue but risk penalising low-income retirees.
- Chancellor’s Confirmation: Chancellor Rachel Reeves has now confirmed an important tax perk for low-income retirees.She explicitly stated that people whose sole income is the State Pension will be protected and will not have to pay income tax.
- Confirmation to Martin Lewis: Ms Reeves provided this definitive confirmation during a televised interview with the high-profile money campaigner Martin Lewis.She assured viewers that “in this Parliament, they won’t have to pay the tax,” providing immediate certainty to concerned pensioners.
- Easing Concerns: This official announcement is intended to successfully quieten the widespread public and political concerns regarding poorer pensioners being dragged into paying tax.The move ensures that the most financially vulnerable retirees are protected from the negative effects of the frozen tax system.
- Broader Fiscal Drag: The extension of the frozen tax bands, while protecting pensioners, means that millions of other households will have to pay more tax as their earnings increase.This broader effect is known as fiscal drag, where more people are gradually pulled into paying higher amounts of tax.
- Tax on Sole Income: The key detail for protection is that the State Pension must be the retiree’s only source of income.If a pensioner has other sources of income, such as private pensions or earnings, they may still be liable to pay income tax.
