The UK government is planning tax relief for pensioners on low incomes, according to the BBC. The measure would protect people whose only income is the State Pension from income tax when their payments exceed the tax-free personal allowance. This is a report of plans ahead of the Budget, not a change in the law already in force.
In a report published on 26 October, the BBC says Chancellor John Healey intends to set out the proposal in Wednesday’s Budget. The government previously pledged that people whose sole income is the State Pension would not pay income tax on it.
State Pension could exceed the personal allowance
The planned relief comes against the backdrop of an expected increase in the full flat-rate State Pension. According to the BBC, the payment is expected to rise by 3.9% from April, taking it to £13,036.40 a year. That would put it above the £12,570 tax-free personal allowance cited by the broadcaster.
On those figures, the annual pension would exceed the threshold by £466.40. Without a change to the rules, that would create an income tax liability even for someone with no other income. The projected pension amount is, however, an expected future rate rather than the amount pensioners are already receiving.
The BBC reports that the Chancellor’s allies see avoiding the administrative burden of paying a small tax bill as the main reason for the proposal. The relief would therefore seek to prevent an increase in the State Pension alone from leaving people who depend entirely on it having to settle an income tax bill.
Details of the protection remain unclear
The Treasury has not yet confirmed the details of the measure, the BBC says. The precise mechanism, eligibility criteria and number of pensioners who would benefit remain unknown.
The reported plan should not therefore be read as a tax exemption for all pensioners. The government’s existing commitment concerns people whose only income is the State Pension. At this stage, there is no basis for assuming that the proposed relief would also cover everyone receiving an additional pension or other income.
