State pensioners may unknowingly be dragged into paying a new tax, with vulnerable claimants potentially having 'no idea' they will soon need to fill in a HMRC form to settle a tax bill. The Office for Budget Responsibility forecasts that 600,000 pensioners will be drawn into paying tax this year, rising to one million by the end of this Parliament. The government has announced changes to ensure people whose sole income is the basic or new state pension without any increments do not have to pay small amounts of tax via simple assessment from 2027-28 if the new or basic state pension exceeds the personal allowance from that point.
From April 2027, the full new state pension will use up all the £12,570 personal allowance and cross the line into attracting a tax bill, meaning those on the full new state pension alone will start paying income tax from April 2027 under current rules. 8 percent this April thanks to the triple lock. More people with another means of income such as a private pension will cross the line into paying income tax as state pension payments rise.
Chancellor Rachel Reeves said that if you just get the basic state pension you will not be paying tax. She confirmed in the Autumn Budget 2025 that income tax bands would remain at their current levels until at least April 2031. Frozen thresholds mean more people are being pulled into higher tax bands every year.
Taxpayers have been warned their HMRC bills could be creeping up going into the new tax year without them realizing it. High earners face an effective 60 percent tax on their income between £100,000 and £125,140 as they gradually lose their personal allowance. From April 2026, Making Tax Digital (MTD) will be rolled out, requiring landlords and self-employed individuals with earnings over £50,000 in 2024/2025 to keep digital records and submit quarterly updates to HMRC.
The capital gains tax-free allowance was cut from £12,300 to £6,000 in April 2023, and from £6,000 to £3,000 in April 2024. Changes to state pension rules for expats are also taking effect, with more than five million people potentially caught out by the tightening of new state pension rules for expats. From April 6, tweaks begin to reshape how expats can build and protect their retirement benefits.
Class 2 national insurance contributions will be abolished, meaning overseas residents can no longer pay the cheaper voluntary contributions; only Class 3 will be available, which is more expensive. To qualify for voluntary contributions, you will have to have lived in the UK for 10 years in a row or paid 10 years of NI contributions, an increase from the previous three-year requirement. The state pension requires 35 qualifying years for a full entitlement, and to receive any at all the threshold is a decade.