Martin Lewis on new £13,037 HMRC tax allowance for pensioners

The measure will come into force from April 2027 and protect pensioners whose total annual income is no higher than the full new State Pension.

Under the plans, pensioners with total income of up to £13,037 a year will not pay income tax, according to Mr Lewis.

The figure is based on the full new State Pension and provides £94 more in tax-free income than the existing £12,570 personal allowance.

HOW NEW STATE PENSION TAX ALLOWANCE WILL WORK: From April 2027, if your total annual income is not more than full new State Pension (£13,037/yr) you will not pay tax. So this is £94 extra tax free. If your total income is slightly higher then for every £3 you earn above, you lose £1 of this extra allowance. So if you earn £13,186 (£150 above) you would get a 'Pension Tax Allowance' meaning you pay £44ish less tax than otherwise (ie £94 minus £50) So by total income of £13,319 you won't receive any extra allowance. HMRC will automatically apply this allowance you will not need to claim it. I will explain better on my show tomorrow. Rushing this now #budget2026

— Martin Lewis (@MartinSLewis) October 28, 2026

Mr Lewis shared further details of how the allowance will work in a post on his social media.

He said: “From April 2027, if your total annual income is not more than full new State Pension (£13,037/yr) you will not pay tax. So this is £94 extra tax free.

“If your total income is slightly higher then for every £3 you earn above, you lose £1 of this extra allowance.”

This means pensioners will gradually lose the additional tax break as their income rises above £13,037, rather than losing it all immediately.

Mr Lewis gave the example of someone with an annual income of £13,186, which is £150 above the threshold.

He said: “So if you earn £13,186 (£150 above) you would get a 'Pension Tax Allowance' meaning you pay £44ish less tax than otherwise (ie £94 minus £50).”

The additional allowance will eventually disappear altogether once total annual income reaches £13,319.

Mr Lewis added: “HMRC will automatically apply this allowance you will not need to claim it.”

The change is intended to address concerns that the full new State Pension is rising above the standard personal allowance, which has been frozen at £12,570.

Without a change, pensioners receiving the full new State Pension could find themselves liable for income tax on the amount above that threshold.

The new allowance will provide additional protection for pensioners with incomes around the full new State Pension level. However, those with private pensions, earnings or other taxable income will need to consider their total income when assessing how the rules affect them.

What the pension tax change means for older pensioners

Older pensioners receiving the basic State Pension could also benefit from the new allowance, but whether they pay tax will depend on their total income.

The full basic State Pension is lower than the full new State Pension, meaning many people who receive it may already have income below the existing £12,570 personal allowance.

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However, some older pensioners also receive a private or workplace pension, savings income or other taxable income that could push them over the threshold.

The new allowance will provide extra protection for those with total annual income up to £13,037, with the additional tax break gradually withdrawn for people earning more than this.

For older pensioners whose income is already below £12,570, the change may make little or no difference because they do not currently pay income tax. Those whose income sits just above the existing allowance could benefit from the additional £94 of tax-free income, depending on their circumstances.