Budget 2026: Poorest pensioners shielded from income tax

Chancellor John Healey has confirmed he will shield low-income retirees from income tax as the state pension is set to rise above the personal allowance threshold next year, in a move expected to cost the government around £200m a year by 2030. Healey said the government would protect nearly one million pensioners who are dependent on the state benefit, confirming measures previously announced under former chancellor Rachel Reeves. He said: Pensioners, I am delivering the new Pension Tax Allowance- so that pensioners with income up to the value of the full new state pension will not pay income tax in this Parliament. From April 2027, the full state pension will rise by £489 to £13,036, but this will push those relying solely on the benefit above the £12,570 personal allowance threshold. The fiscal drag leaves them exposed to income tax. To prevent them from paying nearly £500, Healey hiked the tax-free allowance for this group to £13,036. It is expected to cost taxpayers