HMRC warning: Hundreds of thousands of state pensioners to be hit with tax bill for first time

From April 2026, the state pension will rise by 4.7 per cent to around £12,534.60 a year, just £35 below the £12,570 personal allowance.

This leaves little room for private pension payments, savings interest or other taxable benefits before crossing the threshold.

The uplift will take the new state pension to £241.05 per week, up from £230.25, an annual gain of £561.60. The basic state pension will rise to £184.75 a week from £176.45, adding £431.60 a year.

Steve Webb, partner at pension consultants LCP, stated: "The standard rate of the new state pension is creeping ever closer to the frozen personal tax allowance."

The government’s triple lock guarantee ensures pensions rise by whichever is highest: wage growth, inflation, or 2.5 per cent. With earnings growth at 4.7 per cent in the three months to July 2025, this figure determines next year’s uplift.

Because personal tax allowances are frozen at £12,570 until at least 2028, experts say the two policies are now on a collision course. The narrowing gap will soon mean millions of pensioners face paying tax on even modest extra income.

Nigel Green, chief executive of deVere Group, warned: "If nothing changes, the state pension will overtake the personal allowance entirely within a few years. That would make every pound of additional income taxable for millions."

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The triple lock’s minimum 2.5 per cent guarantee means the state pension will exceed the tax threshold by April 2027, with the new rate expected to reach at least £12,850.

HMRC data shows around 8.5 million pensioners already pay income tax, up from about 7.8 million a year earlier. The Institute for Fiscal Studies predicts hundreds of thousands more will be pulled into the tax net within the next two years unless policy changes.

Mr Webb confirmed: "Indeed, we know for certain that someone who has no other income aside from the new state pension will be a taxpayer come April 2027.

"It is already the case that nearly three quarters of all pensioners pay income tax, and the ongoing freeze in tax thresholds coupled with steady rises in the pension will drag more and more into the tax net."

Mr Green characterised the situation as a "stealth tax" that "punishes those who planned responsibly and undermines confidence in retirement planning."

He emphasised that the government gains revenue through this approach without generating headlines, with the burden falling most heavily on those with fixed incomes.

Financial advisers are recommending immediate action for retirees facing the looming tax trap. Green urged pensioners to "review finances before the new tax year" and "use ISA allowances and time pension withdrawals carefully."

He cautioned: "Waiting for a tax bill is too late."

The April increase adds over £560 annually, yet higher-rate taxpayers could see their gain reduced to approximately £330 after tax is deducted. Mr Green concluded: "What should be a welcome boost risks becoming a net loss. This is not a distant concern. It begins next year."

Mr Green called for government intervention, suggesting authorities should "either raise the personal allowance in step with the state pension or conduct a transparent review of the triple lock."

He argued that without reform, the mechanism designed to protect older people from inflation would instead steadily erode their income.