The Pension Tax Allowance is a new income tax allowance for people at or above State Pension age on modest incomes, announced at the Autumn Budget 2026 on 28 October 2026. From 6 April 2027 it means a pensioner whose total income is no more than the full new State Pension pays no income tax on that income, even where it sits just above the frozen £12,570 personal allowance.
This guide explains who qualifies, how much it is worth, how the taper works, and what it means if you are still working past State Pension age. The figures come from HMRC's official Pension Tax Allowance explainer, published on Budget day, and are confirmed for 2027 to 2028.
What is the new Pension Tax Allowance?
The Pension Tax Allowance is a targeted income tax allowance, worth up to £94, for individuals at or above State Pension age whose total income is no higher than the full annual value of the new State Pension. It cancels the income tax that frozen thresholds would otherwise create on a full State Pension.
Because the personal allowance is frozen at £12,570 until April 2031 while the State Pension keeps rising, a full new State Pension is on course to drift just above the tax-free line. The Pension Tax Allowance stops that small slice being taxed. It sits on top of your personal allowance rather than replacing it. You can see how it fits the wider package in our guide to the Autumn Budget 2026.
Who qualifies for the Pension Tax Allowance?
You qualify if you are at or above State Pension age (or reach it during the tax year) and your total income from all sources is no more than the full annual value of the new State Pension, which is £13,036.40 in 2027 to 2028. You do not need to actually receive the State Pension to qualify.
Income counts whatever its source, a private or workplace pension, part-time work, savings interest, rental property or dividends. The allowance is assessed on each person individually, so in a couple you are each tested on your own income. Check your own State Pension age if you are unsure whether you have reached it. If you are behind on your record, our guide on how to check and fix your State Pension forecast is a sensible first step.
How much is the Pension Tax Allowance worth?
The allowance is worth up to £94 in 2027 to 2028, enough to remove the 20% income tax on earnings between the £12,570 personal allowance and the £13,036.40 full new State Pension. It does not change your personal allowance, and it never produces a refund if your tax bill is smaller than the allowance.
| Total income (2027 to 2028) | Pension Tax Allowance |
|---|---|
| Up to £12,570 (personal allowance) | Not needed, no tax is due anyway |
| £12,570 to £13,037 | Full allowance (up to £94) |
| £13,037 to £13,319 | Partial allowance (tapered) |
| £13,319 or more | No allowance |
How does the taper work above the full State Pension?
Once your income rises above the full new State Pension value of £13,036.40, the allowance is withdrawn at a rate of £1 for every £3 of extra income. It is used up completely once your total income reaches £13,319, after which the normal income tax rules apply in full with no Pension Tax Allowance.
A worked example: a pensioner just over the personal allowance
Take a 67 year old in 2027 to 2028 with total income of £12,900, made up of the State Pension and a small private pension. That is below the £13,036.40 full State Pension value, so they receive the full allowance.
- Income above the £12,570 personal allowance: £330.
- Income tax at 20% without the allowance: £66.
- Pension Tax Allowance applied: up to £94, which cancels the £66.
The result is £0 income tax, where the frozen personal allowance would otherwise have left a small bill. This is an illustrative example to show the method, not advice for a specific person.
What about Scottish taxpayers?
For Scottish taxpayers, HMRC calculates the Pension Tax Allowance using the 20% basic rate, even though Scotland sets its own income tax bands. The allowance works in the same way, removing the tax on income between the personal allowance and the full new State Pension value.
When does the Pension Tax Allowance start?
The allowance applies from the tax year beginning 6 April 2027, and is confirmed for 2027 to 2028, 2028 to 2029 and 2029 to 2030. Its value is uprated each year in line with the new State Pension, and the government will consider arrangements beyond April 2030 nearer the time.
It is one of several changes landing from April 2027. Landlords, for instance, face a separate rise covered in our guide to property income tax rates from April 2027.
How do you claim the Pension Tax Allowance?
You do not need to claim it. HMRC applies the allowance automatically using its records of your State Pension age and income, whether your tax is collected through PAYE, Self Assessment or Simple Assessment. It is given to each person individually and cannot be transferred to a spouse or civil partner.
What it means if you are still working past State Pension age
The allowance only helps those whose total income stays at or below the full new State Pension, so most people still working, running a company or drawing dividends will have too much income to benefit. If you work past State Pension age you also stop paying employee National Insurance, which we explain in our guide to National Insurance after State Pension age.
The government expects around 290,000 pensioners to pay no income tax because of the allowance in 2027 to 2028, with roughly 500,000 seeing a tax reduction that year, rising to about 1 million by the end of this Parliament. If you look after an elderly parent's tax, or you are approaching State Pension age and want to plan your income around the allowance, you can book a free call with a Zmartly accountant. Our tax advisory service can model the figures for your own situation.
Frequently asked questions
Do I need to claim the Pension Tax Allowance?
No. HMRC applies the Pension Tax Allowance automatically from its records of your State Pension age and income, through PAYE, Self Assessment or Simple Assessment. There is no form to complete.
How much is the Pension Tax Allowance worth?
Up to £94 in 2027 to 2028. It removes the 20% income tax on income between the £12,570 personal allowance and the £13,036.40 full new State Pension, and it is uprated each year in line with the State Pension.
Does the Pension Tax Allowance change my personal allowance?
No. The personal allowance stays at £12,570. The Pension Tax Allowance sits on top of it and only cancels the tax on income up to the full new State Pension value, with a taper above that.
Can I transfer the Pension Tax Allowance to my husband or wife?
No. The allowance is assessed on each person individually and cannot be transferred to a spouse or civil partner, unlike the Marriage Allowance.
Will I benefit if I still work after State Pension age?
Only if your total income from all sources stays at or below the full new State Pension of £13,036.40 in 2027 to 2028. Most people working, running a company or drawing dividends will earn too much to qualify.
