The UK State Pension is set to rise again in April 2025, giving pensioners a welcome boost. However, this increase could also mean that more retirees may have to pay tax on their pension income.
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With the State Pension increasing by 4.1% under the Triple Lock, and Personal Allowance remaining frozen until 2028, understanding how much tax you might owe in retirement is more important than ever.
Here’s everything you need to know about the New and Basic State Pension rates for 2025, the potential impact on taxation, and what you can do to manage your pension income effectively.
📢 State Pension 2025 Increase – What’s Changing?
The UK Government has confirmed that both the New and Basic State Pensions will rise from April 7, 2025, in line with the Triple Lock guarantee.
🔹 Full New State Pension (For those who reached retirement age after April 6, 2016):
| Payment Type | 2024/25 Rate | 2025/26 Rate | Increase |
|---|---|---|---|
| Weekly | £221.20 | £230.25 | +£9.05 |
| Four-Weekly | £884.80 | £921.00 | +£36.20 |
| Annual | £11,502 | £11,973 | +£471 |
🔹 Full Basic State Pension (For those who retired before April 6, 2016):
| Payment Type | 2024/25 Rate | 2025/26 Rate | Increase |
|---|---|---|---|
| Weekly | £169.50 | £176.45 | +£6.95 |
| Four-Weekly | £678.00 | £705.80 | +£27.80 |
| Annual | £8,814 | £9,175 | +£361 |
This increase means pensioners will receive hundreds of pounds more each year, but it also means more people will be pushed closer to the tax threshold.
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💰 Will You Need to Pay Tax on Your State Pension?
❌ The Personal Allowance is Frozen at £12,570 Until 2028
The Personal Allowance—the amount you can earn before paying income tax—has been frozen at £12,570 until at least 2028.
Since the full New State Pension for 2025/26 will be £11,973, pensioners will have only £597 of tax-free income remaining before they start paying tax on any additional income (such as private pensions, savings, or employment).
For those on the Basic State Pension (£9,175 per year), there is still some tax-free allowance remaining before reaching the threshold.
📊 How Additional Income Affects Tax Liability
The State Pension alone does not trigger income tax, but if you have any extra income, you may have to pay tax on the amount exceeding £12,570.
For example:
✔ If your total income is £13,000, you will only pay tax on £430 (£13,000 – £12,570).
✔ If your total income is £15,000, you will pay tax on £2,430 (£15,000 – £12,570).
🔹 Important: You only pay tax on the amount above the threshold, not your total income.
📊 Income Tax Bands for Pensioners in 2025
Tax rates differ between Scotland and the rest of the UK. Below is a breakdown of the tax rates pensioners could face in 2025.
Income Tax Bands – Scotland
| Annual Income | Tax Rate |
|---|---|
| Up to £12,570 | 0% (Tax-Free) |
| £12,571 – £14,876 | 19% (Starter Rate) |
| £14,877 – £26,561 | 20% (Basic Rate) |
| £26,562 – £43,662 | 21% (Intermediate Rate) |
| £43,663 – £75,000 | 42% (Higher Rate) |
| Above £75,000 | 47% (Top Rate) |
Income Tax Bands – England, Wales, and Northern Ireland
| Annual Income | Tax Rate |
|---|---|
| Up to £12,570 | 0% (Tax-Free) |
| £12,571 – £50,270 | 20% (Basic Rate) |
| £50,271 – £125,140 | 40% (Higher Rate) |
| Above £125,140 | 45% (Additional Rate) |
✔ Most pensioners will fall into the 20% tax bracket if they have additional income.
📌 How Will Tax Be Deducted?
✔ If you receive private pension income → Tax is deducted automatically through PAYE (Pay As You Earn).
✔ If you are still employed in retirement → Tax will be taken directly from your salary.
✔ If you only receive the State Pension but exceed the tax threshold → HMRC will send you a tax bill to be paid the following January.
🚨 Tip: Keep track of your total income to avoid unexpected tax bills!
📈 More Pensioners Expected to Pay Tax in the Future
✔ Currently, 8 million out of 12.9 million pensioners (62%) pay tax in retirement.
✔ This number is expected to rise due to frozen tax thresholds and increased pension payments.
📊 With workplace auto-enrolment pensions now in their 13th year, more people will retire with additional income—meaning they are more likely to pay tax in retirement.
📢 What Can You Do to Reduce Tax on Your Pension?
If you’re worried about paying more tax on your pension, here are some legal ways to reduce your tax burden:
✔ Use Your Spouse’s Allowance – If your spouse/partner earns less than £12,570, you may be able to transfer some of your taxable income to them to reduce your tax bill.
✔ Utilize Tax-Free Savings – Consider ISAs or tax-free investment accounts to supplement your pension without affecting taxable income.
✔ Take Pension Withdrawals Wisely – If you have a private pension, spread out withdrawals to avoid pushing yourself into a higher tax bracket.
✔ Check for Benefits – Even if you’re paying tax, you may still qualify for Pension Credit, Housing Benefit, or Council Tax Reduction.
🔍 Summary – What This Means for You
✔ The New State Pension will rise to £11,973 per year from April 2025.
✔ More pensioners will come closer to or exceed the tax threshold (£12,570).
✔ If you have additional income, you may pay tax at 19-20% on earnings above £12,570.
✔ Over 8 million pensioners already pay tax in retirement, and this number is expected to rise.
✔ There are ways to legally reduce your tax liability and keep more of your pension income.
📢 Make sure you plan ahead to avoid unexpected tax bills! If you need help, contact HMRC or speak to a financial advisor to manage your pension tax efficiently.
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