Chancellor, John Healey, has announced a new Pension Tax Allowance to protect low-income pensioners from paying income tax on their state pension, as the full new state pension is set to exceed the personal allowance for the first time in April.

Delivering his first Budget today, Healey confirmed that pensioners with income up to the value of the full new state pension will not pay income tax during this parliament.

The measure is intended to fulfil the government's previous commitment to ensure pensioners relying solely on their state pension would not face an income tax bill as a result of triple-lock increases.

The full new state pension is expected to rise by 3.9 per cent from April 2027, to £13,036.40 a year, above the frozen personal allowance of £12,570.

Without intervention, pensioners receiving the full new state pension as their only income would have faced an annual income tax liability of around £93.

The new allowance is intended to prevent this, ensuring that pensioners on the lowest incomes are not brought into the income tax system solely because of the state pension increase.

However, earlier this week, LCP warned that proposals to introduce additional tax protection for low-income pensioners could create unfair 'cliff edges' and rising costs.

The consultancy raised concerns that pensioners receiving even small amounts of additional private pension income could lose access to the protection, depending on how the arrangements were structured.

The government is expected to set out further details on how the new Pension Tax Allowance will operate, including how it treats pensioners with additional income, shortly.

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