DWP New TAX List Announced After 4.1% Payment State Increase: This financial year has started with good news for UK pensioners—state pension payments have increased by 4.1%, giving many retirees a bit more money each week. But while this boost is welcome, it could also push more pensioners into paying income tax due to the frozen personal tax allowance.
Here’s a simple guide to help you understand what’s changing, how much you’ll get, and whether you might be affected by income tax.
How Much Is the New State Pension in 2024–25?
From April 2024, both the basic and new state pensions have gone up:
New State Pension (for those retiring after April 2016)
- Was: £221.20 per week
- Now: £230.25 per week
- Annual total: £11,973
Basic State Pension (for those retiring before April 2016)
- Was: £169.50 per week
- Now: £176.45 per week
- Annual total: £9,180
These payments are made before tax. That means if your total income for the year goes above £12,570 (the personal allowance), you may now need to pay tax.
Why Could More Pensioners Pay Tax Now?
Although the pension has increased, the personal tax allowance (the amount you can earn before paying tax) has been frozen at £12,570 since 2021. It will stay the same until 2028.
So, if your state pension is your only income, you likely won’t pay any tax. But if you have other taxable income, even a small amount, it could push you above the threshold.
What Income Counts Towards the Tax Threshold?
Here are some common types of income that can add up with your pension:
Private or Workplace Pensions
Any income from other pensions is taxable.
Job Income
If you still work part-time or full-time, your wages are added to your pension income.
Self-Employment Earnings
Money earned from freelance or business work is also taxable.
Rental Income
If you rent out property, that income is taxable (you can claim a £1,000 property allowance if the income is small).
Interest from Savings
Only interest above your personal savings allowance is taxed (£1,000 for basic-rate taxpayers).
Carer’s Allowance
If you receive carer’s allowance (£83.30 a week or about £4,331 a year), it is taxable and counts toward your total income.
Important: Pension Credit is not taxable, so it won’t affect your tax status.
Who Gets a Higher Tax Allowance?
Some people qualify for a higher personal allowance:
- Marriage allowance claimants: £13,830
- Blind person’s allowance: £15,700
- If you earn between £100,000 and £125,140, your allowance is reduced.
- If you earn more than £125,140, your allowance is £0.
What Are the Tax Rates for Pensioners?
If your income goes over the allowance, here’s what you might pay:
England, Wales, Northern Ireland:
- 20% on income between £12,571 and £37,700
- 40% on income between £37,701 and £125,140
- 45% on income over £125,140
Scotland:
- 19%: £12,571–£15,397
- 20%: £15,398–£27,491
- 21%: £27,492–£43,662
- 42%: £43,663–£75,000
- 45%: £75,001–£125,140
- 48%: Over £125,140
Why Has the Personal Tax Threshold Not Increased?
The personal allowance has been frozen since 2021, despite inflation and rising incomes. It was part of a government plan to raise money quietly through what many call a “stealth tax.”
A petition with over 120,000 signatures is now calling for the threshold to be raised by £1,000 to stop more pensioners from paying tax.
How Many Pensioners Will Be Affected?
According to reports, around 2.6 million pensioners already earn above the personal tax threshold. The latest rise in the state pension is expected to push an extra 650,000 pensioners into the tax-paying bracket by 2025–26.
The rise in the UK state pension offers extra financial support, but it also brings tax implications. If you receive other taxable income on top of your pension, you might now fall into the tax bracket. It’s wise to review your total income and check if you’ll owe tax this year. You can also speak with a tax adviser to make sure you stay compliant and manage your money better.
FAQ
What is the new UK state pension amount for 2024–25?
The new state pension is now £230.25 per week, which totals £11,973 annually. The basic state pension is £176.45 per week or £9,180 annually.
Will I pay tax on my pension?
You won’t pay tax if your total income is below £12,570. But if you have other income sources like private pensions, job wages, or rental income, you might cross the limit and have to pay tax.
What income counts towards the tax limit?
Income from private or workplace pensions, job wages, rental income, savings interest, self-employment earnings, and Carer’s Allowance all count. However, Pension Credit is not taxable.
Why hasn’t the personal allowance increased?
The personal allowance has been frozen at £12,570 since 2021 and will stay that way until 2028. It’s a way for the government to increase tax revenue without changing tax rates.
How many pensioners could be affected by the new tax rules?
About 650,000 more pensioners are expected to start paying income tax due to the 4.1% increase in the state pension combined with the frozen tax threshold.
