UK Budget: £13,036 state pension to stay tax-free under a new allowance, Healey to confirm

Pensioners in the UK who live on the state pension alone will not pay income tax on it, Chancellor John Healey will confirm in his first Budget on Wednesday, the BBC reported. He plans a new tax allowance for low-income pensioners to keep that promise.

For the many British Pakistani families with parents or grandparents on the state pension, this settles a question that had been building for months.

Why the state pension was about to be taxed

The full, flat-rate state pension is expected to rise by 3.9% from April 2027, to £13,036.40 a year, according to the BBC. The personal allowance, the amount anyone can earn before income tax starts, is frozen at £12,570.

That would leave a pensioner with no other income £466.40 over the threshold. At the basic rate of 20%, the bill would be about £93 a year. In rupees, at today's rate of Rs 370.19 to the pound (see our pound rate page), the pension itself is worth about Rs 4.83 million a year, and the tax that would have fallen due is roughly Rs 34,500.

The government had already said people whose only income is the state pension would not be taxed. The new allowance is how it will do that. Healey's allies argue it also saves older people the paperwork of filing for a small sum.

Who it will and will not cover

The BBC's report describes the allowance as being for low-income pensioners. Details such as the income limit for the new allowance and whether a private or workplace pension counts against it will only be known when the Budget is published. Pensioners with other income above the personal allowance should expect to keep paying tax as now until those details are out.

What else to watch on Wednesday

Treasury sources told the BBC this will be a smaller Budget than recent ones. The speech is due at lunchtime on Wednesday 28 October in London, which is late afternoon in Pakistan.

The opposition parties have set out their own plans:

• Conservatives: cuts to green taxes, red tape and benefits to bring down energy bills.
• Reform UK: 60 policies it says would create jobs, including approving the Rosebank oil field, a project Healey is understood to back.
• Liberal Democrats: Treasury spokeswoman Daisy Cooper wants a growth and defence partnership with the EU, including joining the single market.
• Greens: leader Zack Polanski and others want energy bill support funded by ending a tax relief for data centres.

What it means for families here

Many pensioners in Britain send money home to relatives in Pakistan, and a tax-free state pension keeps that amount steady. If you receive pounds from the UK, our currency converter shows what a transfer is worth today. Last week's UK inflation and pound rate report explains why the pound has been moving.

We will update this story when the Budget is delivered.