The state pension is set to increase from April 2027. The full State Pension is expected to rise to around £250.70 a week, or approximately £13,036.00 a year. This means the state pension will exceed the standard Personal Allowance which is currently £12,570.

Does this mean you will now pay tax on your state pension?

The Government has said that people whose only income is their State Pension will not have to pay Income Tax, even though the State Pension will be above the £12,570.00 Personal Allowance.

However, if your State Pension is not your only income you will pay tax on the element above the personal allowance. The additional taxable amount will be approximately £466.00 resulting in additional tax of £93.20.

For example:

If your State Pension is £13,036.00 a year and you receive a private pension of £5,000.00 a year, your total income will be £18,036.00

After taking into account the personal allowance your taxable income would be £5,466.00, which would result in tax at the basic 20% rate of approximately £1,093.00.

This will also apply to other taxable income such as rental income, self-employment income, interest, dividends, etc (other tax rates and allowances may apply).