HMRC will write off tax bills for some state pensions as more are penalised by frozen thresholds.
Over one hundred thousand pensioners have already received an income tax demand this year.
Forecasts suggest that hundreds of thousands more retirees will start paying income tax if the personal allowance remains at its current level.
This is the amount you can earn each year tax-free.
It’s currently frozen at £12,570 a year, so anyone earning below this will not need to pay income tax, but earning above will be liable to pay up.
Up to 400,000 pensioners could be forced to pay income tax if the state pension exceeds the personal allowance threshold in the next two years.
According to Quilter, another one in five pensioners could be dragged into paying the higher or additional rate tax by 2028.
Over one million people currently live on just the state pension and benefits, and 1.7 million receive the full new state pension, according to the Department for Work and Pensions (DWP).
At the end of each financial year, tax demands are sent to those who live solely off the state pension and are found liable for income tax.
However, HMRC has indicated that it will not send tax demand to every household affected.
The tax office said it would not pursue those who owe minimal amounts, as the cost of collection would be too high.
However, it hasn’t specified what amount would qualify for a write off.
An HMRC spokesperson said: “No-one will have to file a tax return because an increase in state pension takes them over the personal allowance.
“The majority of PAYE customers will have any tax owed collected via their tax code.
“Those who are not in PAYE or Self Assessment will be issued a Simple Assessment letter, which will inform them of any tax they need to pay.”
THE full rate of the new state pension is £221.20 a week - or £11,502.40 a year.
Under the old system, the full basic state pension is £169.50 per week -or £8,814 a year – and is paid to those who retired before April 6, 2016.
Under the triple lock, the state pension is uprated in April by inflation for the previous September, wages or 2.5%, whichever is higher.
With annual growth in total earnings, including bonuses, standing at 4.5% in June, it’s likely that state pension payments will rise by July’s wage growth figure if inflation stays around 2%.
If wage growth remains at 4.5% when the next round of figures is released next month, the new state pension would get a boost of around £517.
For those on the new state pension, weekly payments would rise by £9.95 a week to £231.15 – up from £221.20.
An increase of 4.5% would bring the yearly new state pension to £12,061 a year.
For those on the full basic state pension, payments would rise by £7.63 a week to £177.13.
An increase of 4.5% would bring the yearly basic state pension to £9,210.76 a year.
Future growth in state pension payments from 2026 could mean that payments rise above the personal allowance, leaving more and more state pensioners liable for income tax.
The way tax is paid depends on the kind of pension you get, and whether you have any other income.
Usually, HMRC collects any tax owed from your income automatically if you’re employed and set up on the pay as you earn (PAYE) system.
Those who are self-employed have to fill in a self-assessment tax return to work out any tax owed.
You must declare your overall income, including the State Pension and money from private pensions, for example your workplace pension.
This then needs to be paid directly to HMRC.
If you claim the state pension and income from a private pension, your pension provider will usually take off any tax you owe before paying you.
They’ll also take off any tax you owe on your state pension.
However, as the state pension cannot be taxed at source, those living solely on the full new state pension are issued with a tax demand directly from HMRC.
In cases of this sort, HMRC will operates a “simple assessment” system.
As part of this, the DWP notfies HMRC at the end of a tax year how much state pension an individual has received.
If this takes the individual over the income tax threshold, the HMRC will send a tax bill in the post at the end of the next tax year.
If you earn £12,570 or less, you currently pay no income tax.
This is known as the personal allowance.
It can change from one year to the next and is set by the government but the thresholds are currently frozen until 2028.
On earnings between £12,570 and up to £50,270, you pay the basic income tax rate of 20%.
Wages of £50,271 and above are taxed at the higher rate of 40%.
And the additional rate of income tax, which applies to earnings above £150,000, is 45%.
However, you might have your own personal allowance and it could be bigger or smaller depending on your own circumstances.
For example, people with sight issues can get the blind person’s allowance, which increases this tax-free amount.
YOUR tax-free personal allowance amount is usually reflected in your tax code, which can be found on your payslip.
However, if you no longer work, you can check your tax code by visiting
The letter L in your tax code signals that you’re entitled to the standard tax-free personal allowance.
The letter M means you’ve transferred some of your personal allowance to your partner using the marriage allowance.
Meanwhile, the letter N signals the opposite – you’ve received some of your partner’s tax-free personal allowance.
