Will the 2027 State Pension Increase Affect Your Income Tax?

The 2027 pension increase could push the full New State Pension above £13,000 a year for the first time. But while pensioners may welcome the extra income, there’s a catch: could part of that increase end up going to HMRC instead?

With the standard Personal Allowance frozen at £12,570, the new state pension over 13000 is raising concerns about potential income tax bills. Although the government has announced protection for those relying solely on their state pension, pensioners receiving private pensions, rental income or other earnings could face additional tax.

So, will the 2027 State Pension increase leave you better off, or could it increase your tax bill? Here’s what the latest forecasts mean for your retirement income.

How Much Will the Full State Pension Be in April 2027?

The full New State Pension currently stands at £241.30 per week for 2026/27. Based on the expected 3.9% increase, it could rise to approximately £250.70 per week from April 2027.

The projected State Pension rates for 2027/28 are:

Those receiving the full New State Pension could see an annualised increase of approximately £489. The actual amount will depend on individual entitlement, and the final 2027/28 rates are subject to official confirmation.

Source: GOV.UK – Benefit and Pension Rates 2026/27

Why Is the New State Pension Going Over £13,000?

The new state pension over 13000 is becoming a major talking point in the UK as the April 2027 Pension Increase is expected to take the full annual amount to approximately £13,036. This increase is driven by the government’s Triple Lock policy, which ensures the State Pension rises each year by the highest of average earnings growth, September CPI inflation or 2.5%.

While the increase will provide additional retirement income, the frozen Personal Allowance of £12,570 means pensioners receiving other taxable income could face higher Income Tax liabilities.

Will the 2027 State Pension Increase Affect Your Income Tax?

The pension increase could affect your income tax, particularly if you receive private pensions, rental income or other taxable earnings alongside your state pension.

The UK State Pension is taxable, but income tax is not deducted directly from state pension payments. HMRC calculates any tax due by considering your total taxable income and available allowances.

With the standard Personal Allowance at £12,570, the projected full New State Pension of £13,036.40 would exceed that threshold by £466.40.

How Much Tax Could Pensioners Pay?

The following example shows the potential tax position of someone receiving the full projected New State Pension with no other income.

Under ordinary income tax rules, the excess could create a tax liability of approximately £93 annually. However, this does not mean pensioners relying solely on the State Pension will automatically receive a tax bill.

In Budget 2025, the government announced plans to protect people whose only income is the basic or New State Pension, without increments, from small tax bills through Simple Assessment from April 2027. The detailed implementation remains subject to confirmation.

The figures above are annualised illustrations. Actual taxable State Pension income for 2027/28 may differ because the pension rate changes during the tax year.

Sources: HMRC – How Your State Pension Is Taxed | HM Treasury – Budget 2025

What If You Receive a Private Pension or Other Income?

Pensioners receiving income from additional sources may face a different tax position.

For example, someone receiving £13,036.40 in State Pension and £5,000 from a private pension would have a combined annual taxable income of £18,036.40.

After deducting the standard Personal Allowance of £12,570, approximately £5,466.40 would remain taxable. At the 20% basic rate, this would result in an illustrative income tax liability of £1,093.28.

Actual liability depends on the individual’s circumstances and applicable tax rates. Pensioners with multiple income sources should review their overall tax position to avoid unexpected liabilities.

For assistance with declaring additional income, explore our Self Assessment tax return services.

Will Pensioners Pay Tax in 2027?

Not all pensioners will pay income tax following the 2027 increase. Those receiving less than the full state pension may remain below the personal allowance, while qualifying pensioners relying solely on their state pension may benefit from the government’s announced protection.

However, pensioners with private pensions, employment income or rental profits may already be liable for income tax. HMRC can collect tax through adjustments to PAYE tax codes, Simple Assessment or Self Assessment, depending on the circumstances.

Receiving a state pension does not automatically require someone to submit a Self Assessment tax return. The requirement depends on their other income and whether HMRC has issued a notice to file.

What Is the Triple Lock Forecast for the State Pension in 2027?

The State Pension Triple Lock 2027 forecast indicates an increase of approximately 3.9%, based on the relevant average earnings growth figure.

The Triple Lock has helped protect pension income against inflation and changes in earnings. However, the government has announced plans to reform the system from April 2030 while maintaining increases of at least 2.5% inflation.

Pensioners approaching retirement should consider future pension increases alongside their expected retirement income and tax obligations.

Source: GOV.UK – State Pension Uprating

Does My UK State Pension Increase If I Live Abroad?

Whether your UK State Pension increases while living overseas depends on your country of residence.

Annual increases generally apply to pensioners living in the European Economic Area (EEA), Switzerland, Gibraltar and certain countries with qualifying social security agreements, including the United States.

However, pensioners living in countries such as Australia, Canada and New Zealand generally do not receive annual increases. This is commonly known as a frozen state pension. 

If you permanently return to the UK, your pension will generally increase to the current applicable rate. Living abroad can also affect your tax obligations, depending on your tax residence and any applicable double taxation agreement.

Source: GOV.UK – State Pension If You Retire Abroad

How Can You Check Your UK State Pension Forecast?

Not everyone receives the full New State Pension. Your entitlement depends mainly on your National Insurance record and circumstances under the State Pension system.

You can check your expected pension amount, State Pension age and whether you may be able to increase your entitlement through the government’s online service.

Official service: Check Your State Pension Forecast – GOV.UK

How Should You Prepare for the 2027 Pension Increase?

With the full New State Pension expected to exceed the Personal Allowance, it is worth reviewing your total taxable income before April 2027.

Check how much you receive from state pension payments, private pensions, employment and rental properties. If your combined income exceeds your available allowances, you may need to review your PAYE tax code or Self Assessment position.

Pensioners receiving rental income should also consider how property profits affect their overall tax liability. Our Landlord Tax services can help property owners understand their reporting obligations.

Final Thoughts

The 2027 Pension Increase is expected to push the full New State Pension above £13,000 annually. While this means more retirement income, pensioners receiving income from other sources could face additional income tax liabilities.

A higher pension doesn’t always mean more money in your pocket. Reviewing your total income and tax allowances before April 2027 could help you prepare for potential changes and avoid unexpected tax bills.

Not sure what the increase means for you? Speak to Artifin Accountants for professional guidance on your tax position and the steps you may need to take.