State Pension and tax: why more pensioners are getting bills from HMRC
The State Pension is now £22 short of the frozen Personal Allowance, so other income is taxed. What Simple Assessment letters mean
The full new State Pension rose 4.8% in April 2026 to £241.30 a week, or £12,548 a year. The Personal Allowance stayed at £12,570. That leaves £22 of tax-free allowance for everything else, so almost any private pension, savings interest or part-time earnings is now taxed. Forecasts point to a State Pension of around £13,000 from April 2027, which would exceed the allowance outright. This guide explains how the tax is collected, what the letters mean and what the 2027 figure would change.
How the State Pension is taxed
The State Pension is taxable income, but it is paid gross. The DWP never deducts tax. HMRC has to collect any tax due another way, and it uses one of two routes.
Through a private or workplace pension. If you have another pension, HMRC reduces the tax-free allowance in that pension's tax code by the amount of your State Pension. Someone on the full new State Pension has £12,548 of allowance used up, leaving £22, so their private pension code becomes roughly 2L. Nearly every pound of the private pension is then taxed at 20%. This is not a mistake. It is the State Pension tax being taken from the only income that can carry a code.
Through Simple Assessment. If you have no private pension, or the code cannot collect enough, HMRC sends a Simple Assessment letter, form PA302, after the tax year ends. It shows the income HMRC knows about, the tax due and how to pay. The bill for 2025/26 is due by 31 January 2027, or three months after the letter if that is later.
| Income in 2026/27 | Taxable above allowance | Tax due |
|---|---|---|
| Full new State Pension only | Nothing | £0 |
| State Pension plus £3,000 private pension | £2,978 | £596 |
| State Pension plus £8,000 private pension | £7,978 | £1,596 |
| Basic State Pension £9,615 plus £5,000 private pension | £2,045 | £409 |
Check the figures before you pay
Simple Assessment letters are only as good as the data behind them. Check:
- The State Pension figure. HMRC uses the annual amount for the tax year, which is different from 52 times the weekly rate in some years.
- Savings interest. Banks report it, and the £1,000 Personal Savings Allowance should be applied. Low earners also get the £5,000 starting rate for savings.
- Marriage Allowance. If your spouse has transferred £1,260 of allowance, it should appear.
If something is wrong you have 60 days from the date of the letter to query it. Do it through your personal tax account at gov.uk or by phone.
Tax codes on private pensions
Retiring often means several small pensions. HMRC attaches the remaining allowance to one of them and puts the others on BR, taxing them entirely at 20%. That is right if the total is over £12,570, but if HMRC's estimates are out, you can end up overpaying. Check every code in the HMRC app, and make sure the estimated State Pension figure is the amount you actually receive. HMRC has also been writing to some pensioners about small refunds, typically around £70, relating to tax relief on workplace pension contributions. If you receive one, it is genuine, but claim it by logging in directly rather than through any link in a message.
What the 2027 figure would mean
A State Pension of about £13,000 would be £430 over the allowance. On its own that would produce a tax bill of around £86 a year for someone with no other income, collected by Simple Assessment. For everyone else it simply increases the amount already collected through their private pension code.
The government has not announced how it will handle pensioners whose only income is the State Pension. Whatever is decided will come at or after the Autumn Budget, so treat the £86 as a planning figure rather than a certainty.
Watch out for
- Ignoring a Simple Assessment because you have never filed a return. It is a legal bill and late payment attracts interest.
- Deferring the State Pension to avoid tax. Deferral increases the later payments, which are also taxable.
- Winter Fuel Payment recovery. If your taxable income is over £35,000 the £200 or £300 is clawed back through your tax code or Simple Assessment.
- Pension Credit. If your income is under £238 a week single or £363.25 as a couple, you may qualify, and the top-up itself is not taxable.