The pensioners income tax threshold, the £12,570 Personal Allowance, is now only about £22 above the full new State Pension of £12,547 a year. That means if you receive anything on top of your State Pension — a workplace pension, savings interest, part-time wages, rental income — you will almost certainly owe income tax at 20 percent on the excess. And if the State Pension rises again next April, as the Triple Lock all but guarantees, it will overtake the Personal Allowance on its own.
Why the Threshold Is Frozen Until 2031
The Personal Allowance has been stuck at £12,570 since the 2021/22 tax year. The Finance Act 2021 originally locked it there through April 2026.1Legislation.gov.uk. Finance Act 2021 The freeze has since been extended twice, most recently in the 2025 Budget, which pushed the end date out to April 2031.2UK Parliament. Income Tax: Freezing the Personal Allowance and the Higher Rate Threshold The Finance Act 2026 provides the statutory basis for the latest extension.3UK Parliament. Fiscal Drag: An Explainer
Prices and incomes keep rising. The tax-free threshold does not. Economists call the effect fiscal drag, and it works as a stealth tax rise: more people cross into the tax net each year without any change to the rules. Pensioners are hit hardest because their main income, the State Pension, rises annually under a legal guarantee.
How Close the State Pension Now Sits to the Threshold
The Triple Lock raises the State Pension each April by the highest of inflation, average earnings growth, or 2.5 percent.4UK Parliament. State Pension Triple Lock In April 2026 the full new State Pension rose by 4.8 percent to £241.30 per week.5GOV.UK. The New State Pension: What You’ll Get Over a full year that is roughly £12,547, leaving about £22 of tax-free space against the £12,570 Personal Allowance.6GOV.UK. Income Tax Rates and Personal Allowances
For comparison, in 2024/25 the full new State Pension was around £11,500 a year, leaving more than £1,000 of headroom. That cushion has effectively gone. With the freeze running to at least April 2031, even a modest Triple Lock uplift next April will push the State Pension over the Personal Allowance on its own. Pensioners who receive nothing else would then owe income tax for the first time.
What Other Income Counts Toward the Threshold
HMRC totals up all your taxable income for the year. With only £22 of headroom from the State Pension, the following sources typically tip pensioners into a tax bill:
- Private and workplace pensions, including defined benefit payments, drawdown withdrawals, and annuities.
- Wages from part-time employment, casual work, or self-employment.
- Interest from bank and building society accounts. Basic rate taxpayers get a £1,000 Personal Savings Allowance and higher rate taxpayers £500, but this is a nil-rate band, not a reduction in your taxable total.7GOV.UK. Tax on Savings Interest: How Much Tax You Pay
- Dividends outside an ISA, above the £500 tax-free allowance. Basic rate taxpayers pay 8.75 percent on the excess.
- Net profit from letting a property.
The State Pension itself is paid gross. HMRC does not deduct tax before it reaches your bank account, but it still counts as taxable income and it now uses up almost all of your Personal Allowance before anything else is added.2UK Parliament. Income Tax: Freezing the Personal Allowance and the Higher Rate Threshold
How HMRC Collects the Tax
How you pay depends on your income mix.
Through Your Private Pension (PAYE)
If you have a private or workplace pension alongside the State Pension, HMRC will usually adjust your tax code so the private pension provider deducts the tax owed on both.8GOV.UK. Tax When You Get a Pension: How Your Tax Is Paid Your State Pension arrives in full; your private pension arrives smaller, because it is carrying the tax bill for both. Where there are multiple private pensions, HMRC picks one to handle the deduction.
Simple Assessment
If the State Pension is your only income but exceeds the threshold, HMRC uses Simple Assessment and sends a PA302 letter showing what you owe.9GOV.UK. Check Your Simple Assessment Tax Bill If the letter arrives before 31 October, payment is due by the following 31 January. If it arrives on or after 31 October, you have three months from the date of the letter.10GOV.UK. Pay Your Simple Assessment Tax Bill: Overview No tax return is required.
Self Assessment
Pensioners with rental income, significant investments, or self-employment earnings usually need to file a Self Assessment return. The online filing and payment deadline is 31 January after the end of the tax year.11GOV.UK. Self Assessment Tax Returns: Deadlines
Check Your Tax Code Before the Year Runs Out
Your tax code tells your pension provider how much of your income is tax-free. The standard code is 1257L, reflecting the full £12,570 allowance.12GOV.UK. What Your Tax Code Means Once HMRC knows you receive a State Pension, they reduce the number in your private pension’s tax code to account for it. If your State Pension already uses up nearly the whole allowance, the code applied to your private pension may leave almost no tax-free space, so most of that pension will be taxed at 20 percent. A code of BR means the whole of that income is taxed at basic rate with no allowance applied.
Tax codes go wrong regularly. You can check yours through your personal tax account on GOV.UK and update your income details if anything is out of date.13GOV.UK. Check Your Income Tax for the Current Year Fixing it early in the tax year is far easier than dealing with an unexpected bill or refund the following spring.
Marriage Allowance for Pensioner Couples
If you are married or in a civil partnership and one of you has income below £12,570, the lower earner can transfer £1,260 of unused Personal Allowance to the other. That cuts the higher earner’s tax bill by up to £252 a year.14GOV.UK. Marriage Allowance: How It Works Retirement does not disqualify you. If either partner was born before 6 April 1935, the Married Couple’s Allowance may be worth more, but you cannot claim both. Claims can be backdated up to four tax years, so if you only recently crossed the threshold it is worth checking the earlier ones.
What Happens If You Pay Late
A missed Self Assessment deadline triggers an automatic £100 penalty, even if you owe nothing. After three months, HMRC adds £10 a day up to £900. After six months there is a further penalty of 5 percent of the tax due or £300, whichever is greater, and again at twelve months.15GOV.UK. Self Assessment Tax Returns: Penalties
Interest also runs on any unpaid tax at 7.75 percent, the rate in effect since January 2026.16GOV.UK. HMRC Interest Rates for Late and Early Payments If paying in full is not realistic, HMRC’s Time to Pay service can spread the bill over monthly instalments, which is usually cheaper than letting penalties and interest accumulate.