Approximately 1.7 million pensioners may risk overtaxation due to a calculation error by HM Revenue and Customs (HMRC). This issue primarily impacts individuals who file self-assessment tax returns and could lead to an excessive tax charge of around £5. While this amount may seem minor, HMRC advises pensioners to carefully review their tax returns before the January 31, 2027, self-assessment deadline.
Understanding the Tax Payment Issue
This situation affects a specific segment of the 13.2 million individuals receiving the state pension. Typically, pensioners relying solely on the state pension, workplace pensions, or savings interest do not need to file self-assessment returns, as HMRC collects owed taxes automatically. However, those with more complex income sources, such as self-employment or rental income, must complete self-assessment returns that include state pension income.
The Calculation Error
Under current HMRC regulations, the calculation of state pension income for tax returns uses 51 weeks at the current annual state pension rate and one week at the previous year’s rate. Unfortunately, HMRC has mistakenly applied 52 weeks at the current year’s rate, leading to inflated taxable income for some pensioners. This error could result in unnecessary tax payments.
HMRC has publicly apologized and encouraged pensioners to verify the accuracy of the state pension figures reported on their tax returns. If discrepancies are found, pensioners have the option to amend their returns or request refunds for overpaid taxes.
Steps to Ensure Accurate Tax Payments on Your State Pension
To avoid complications regarding tax payments on the state pension, it is essential to follow these steps:
- Verify State Pension Figures: Cross-check the state pension figure on your tax return against the DWP uprating letter received at the start of the tax year.
- Amend Incorrect Returns: If you identify an error, manually correct it on your self-assessment form before the January 31 deadline or adjust your already submitted return online.
- Understand Tax Code: Regularly review your tax code on workplace or private pension statements, ensuring it aligns with expectations.
Changes in Tax Regulations Starting in 2027
In the Autumn Budget 2025, the government announced that pensioners whose only income is from the state pension will not pay income tax starting in April 2027. The new full state pension is set to increase to £241.30 per week, approaching the current personal allowance of £12,570. However, this exemption will only apply if the state pension is the sole source of taxable income.
Future Implications for Pensioners
An estimated 700,000 pensioners—about one in 18 state pension recipients—are expected to benefit from this change, with potential savings projected at:
| Year | Estimated Savings |
|---|---|
| 2027-28 | £88 |
| 2028-29 | £153 |
| 2029-30 | £220 |
However, many pensioners may remain taxable due to varying circumstances. The exemption will exclude individuals receiving the old state pension, which does not qualify for this tax relief.
Those wholly dependent on the new state pension may face further complications if they have other sources of income that cannot support the exemption. The government’s commitment to maintaining tax-free status hinges on having no additional income exceeding the personal allowance.
Conclusion
Pensioners must stay informed about their tax liabilities to ensure accurate tax payments on their state pension. By closely monitoring income, tax codes, and changes in regulations, individuals can mitigate the risk of overpayment and adjust their returns as necessary.
