Frozen tax thresholds and the State Pension are now almost the same number. From April 2026, the full new State Pension pays £12,547.60 a year, just £22.40 below the £12,570 Personal Allowance that determines when income tax starts. That allowance is frozen until April 2031, so any workplace pension, savings interest, or other income on top of the State Pension is taxable from the first pound. One more triple-lock rise at anything like the current pace will lift the full new State Pension itself above the threshold, making every recipient a taxpayer by default.
How Long the Freeze Runs
The Personal Allowance was set at £12,570 and the higher rate threshold at £50,270 by the Finance Act 2021.1Legislation.gov.uk. Finance Act 2021 The 2025 Budget extended the freeze to April 2031 through the Finance Act 2026.2House of Commons Library. Income Tax: Freezing the Personal Allowance and the Higher Rate Threshold That is a full decade with no inflationary adjustment. The government has said thresholds will be uprated in line with inflation after April 2031.
When thresholds stay still while incomes rise, more people are pulled into tax or into higher bands without any change in the law. The effect is called fiscal drag, and it raises revenue quietly, without new legislation or higher rates.3House of Commons Library. Fiscal Drag: An Explainer For pensioners, it is the mechanism turning modest annual State Pension rises into a shrinking net gain.
How Close the State Pension Sits to the Threshold
The triple lock raises the State Pension each April by the highest of CPI inflation, average earnings growth, or 2.5%.4House of Commons Library. State Pension Triple Lock The Personal Allowance, meanwhile, does not move.
From April 2026, the full new State Pension rises by 4.8% to £241.30 per week, or £12,547.60 across a full year.5GOV.UK. Over 12 Million Pensioners to Receive £575 State Pension Boost That is £22.40 short of the allowance. A year earlier, the same pension sat nearly £600 below it.6GOV.UK. Benefit and Pension Rates 2026 to 2027 One more increase at a similar rate crosses the line.
Take a pensioner with the full new State Pension of £12,547.60 and a modest workplace pension of £3,000. Total income is £15,547.60. Deduct the £12,570 allowance and £2,977.60 is taxable at 20%, producing a tax bill of roughly £596. In 2025/26, the same person on the same private pension had total income of £14,973 and owed about £481. The State Pension rose automatically, but £115 of the increase went straight to HMRC.
What Income Counts Toward the £12,570
Every source of taxable income is added together before being measured against the Personal Allowance. The State Pension is paid gross, without any tax deducted at source, but it fully counts as taxable income.7GOV.UK. Tax When You Get a Pension – How Your Tax Is Paid HMRC adds it to everything else when working out what you owe.
The main sources that count for most pensioners are:
- The State Pension itself, including any additional State Pension
- Private and workplace pension payments
- Employment or self-employment earnings
- Rental income from property
- Savings interest above the Personal Savings Allowance
- Dividend income above the dividend allowance
ISA interest is outside the calculation. Interest from ordinary savings accounts is not. Once the State Pension consumes almost the entire allowance, even £500 of savings interest produces a tax charge on nearly the whole amount.
The 25% tax-free lump sum available from a private or workplace pension, capped at £268,275, sits outside this calculation and does not count as income for the year.8GOV.UK. Tax When You Get a Pension: What’s Tax-Free The remaining 75% is taxable when drawn, and gets added to your State Pension and other income for the year it comes out.
How HMRC Collects the Tax
Because the State Pension arrives without tax deducted, HMRC has to collect what is due through other channels. Which one applies depends on what else you receive.
Through Your Private Pension Tax Code
If you have a private or workplace pension alongside the State Pension, HMRC adjusts the tax code applied to the private pension so the provider deducts enough to cover both.7GOV.UK. Tax When You Get a Pension – How Your Tax Is Paid When the State Pension uses most of the Personal Allowance, the private pension ends up taxed on nearly every pound it pays.
You can check your code on your Personal Tax Account or on the PAYE coding notice HMRC sends each year.9GOV.UK. Tax Codes Coding errors are common. If HMRC has the wrong State Pension figure, you may overpay for the whole year before you notice. Reviewing the notice when it arrives is worth doing.
Simple Assessment
If you have no private pension or employment income and reached State Pension age on or after 6 April 2016, HMRC sends a Simple Assessment after the tax year ends.10GOV.UK. Simple Assessment Guide for Pensioners It calculates the bill from information HMRC already holds. You do not file a return; you pay the amount shown by the deadline on the letter. As the full new State Pension approaches the allowance, pensioners who have never owed tax before may start receiving these letters.
Self Assessment
Pensioners with rental income, self-employment earnings, or income above the reporting thresholds file a Self Assessment return instead. Late filing triggers an automatic £100 penalty, with further daily and percentage charges that build over time.11GOV.UK. Self Assessment Tax Returns: Penalties
The Rates You Pay Above the Threshold
In England, Wales, and Northern Ireland, income above the Personal Allowance is taxed at three rates:12GOV.UK. Income Tax Rates and Allowances for Current and Previous Tax Years
- Basic rate of 20% from £12,571 to £50,270
- Higher rate of 40% from £50,271 to £125,140
- Additional rate of 45% above £125,140
Most pensioners stay within the basic rate band. Those with generous final-salary pensions, substantial rental income, or continued self-employment can reach higher rate. There is a further trap above £100,000: the Personal Allowance shrinks by £1 for every £2 of income over that figure and disappears at £125,140.13House of Commons Library. Direct Taxes: Rates and Allowances for 2025/26 Because you lose the allowance and pay 40% on the same slice of income, the effective marginal rate between £100,000 and £125,140 is 60%. A single large pension withdrawal in one tax year can land you in this zone.
Scotland
Scotland sets its own rates above the UK-wide Personal Allowance. For 2025/26, Scottish taxpayers face six bands:14Scottish Government. Scottish Income Tax 2025 to 2026: Factsheet
- Starter rate of 19% from £12,571 to £15,397
- Basic rate of 20% from £15,398 to £27,491
- Intermediate rate of 21% from £27,492 to £43,662
- Higher rate of 42% from £43,663 to £75,000
- Advanced rate of 45% from £75,001 to £125,140
- Top rate of 48% above £125,140
The starter rate helps a little at the bottom. The higher rate cuts in much earlier than in the rest of the UK, at £43,663 rather than £50,271, so a Scottish pensioner with a substantial private pension pays more.
Two Levers Worth Using
Marriage Allowance lets a spouse or civil partner earning below £12,570 transfer £1,260 of their unused Personal Allowance to a partner paying basic rate tax, cutting the higher earner’s bill by up to £252 a year.15GOV.UK. Marriage Allowance: How It Works Claims can be backdated to the 2021/22 tax year, so up to five years of savings can come through at once. In Scotland, the receiving partner must pay tax at the starter, basic, or intermediate rate.
Timing pension withdrawals is the other lever. Because the 75% taxable portion of a private pension adds to your State Pension for the year, a large single withdrawal can push you into higher rate or into the £100,000 allowance-taper zone. Spreading withdrawals across tax years keeps more of the money in the lower bands. With thresholds fixed until April 2031, the value of that planning is larger than it used to be.