Updated: October 2026
Each new tax year brings changes that affect how much pensioners keep, and the November 2025 Budget set out several that matter for retirees over the next few years. Some started in April 2026, and others are coming in 2027.
Here is a plain-English round-up of the tax changes affecting UK pensioners, what has already happened and what to plan for.
Quick answer: The Personal Allowance stays frozen at £12,570 until April 2031, while the State Pension rose 4.8% in April 2026 to £241.30 a week. Dividend tax went up in April 2026. From April 2027, tax on savings interest rises by 2 percentage points, most unused pensions start counting for inheritance tax, and the cash ISA limit falls to £12,000 for under-65s.
Changes that started in April 2026
Personal Allowance frozen for longer
The Personal Allowance, the amount you can earn before paying income tax, stays at £12,570. The freeze has now been extended until 5 April 2031, along with the higher rate threshold of £50,270. As pensions rise each year but the allowance does not, more pensioners are pulled into paying tax.
| Income (England, Wales and NI) | Tax rate |
|---|---|
| Up to £12,570 | 0% (Personal Allowance) |
| £12,571 to £50,270 | 20% (basic rate) |
| £50,271 to £125,140 | 40% (higher rate) |
| Over £125,140 | 45% (additional rate) |
Scotland has its own income tax rates and bands.
State Pension up 4.8%
The full new State Pension rose to £241.30 a week (£12,547.60 a year) in April 2026, just £22.40 below the Personal Allowance. If you have any other taxable income, such as a workplace pension, you are likely to pay tax. See will you pay tax on your State Pension in 2026/27? and our State Pension increase guide.
Higher tax on dividends
From 6 April 2026, the ordinary rate of dividend tax rose from 8.75% to 10.75%, and the upper rate from 33.75% to 35.75%. The additional rate stays at 39.35%. This matters if you hold shares or funds outside an ISA or pension and receive more than the £500 dividend allowance.
Working from home tax relief removed
If you still work part-time, note that tax relief for unreimbursed working from home costs was removed from 6 April 2026.
Changes coming in April 2027
Tax on savings interest rises
From 6 April 2027, tax on savings interest above your allowances goes up by 2 percentage points, to 22% (basic), 42% (higher) and 47% (additional). Your Personal Savings Allowance and the starting rate for savings still apply, so many pensioners on modest incomes will not be affected.
Cash ISA limit cut, but not for over-65s
From April 2027, the amount you can put into a cash ISA each year falls to £12,000, within the overall £20,000 ISA allowance. Savers aged over 65 can still put up to £20,000 a year into a cash ISA. See our guide to ISAs for UK retirees.
Pensions and inheritance tax
From 6 April 2027, most unused pension funds and death benefits will count towards your estate for inheritance tax. This is one of the biggest changes for retirement planning in years. Read what the pension inheritance tax change means for you.
Property income tax rises
If you rent out property, income tax on rental profits rises to 22%, 42% and 47% from April 2027 in England, Wales and Northern Ireland.
State Pension-only pensioners and small tax bills
The government has said that people whose only income is the basic or new State Pension, without any extra amounts, will not have to pay small amounts of tax through Simple Assessment from 2027/28. More detail is expected.
Other thresholds that stay frozen
- Inheritance tax: the nil-rate band (£325,000) and residence nil-rate band (£175,000) are frozen until April 2031.
- Capital gains tax: the annual exempt amount stays at £3,000, with rates of 18% and 24%.
- Pensions: the annual allowance stays at £60,000, the money purchase annual allowance at £10,000, and the tax-free lump sum allowance at £268,275 for most people.
For a checklist of what to review each April, read our new tax year retirement planning guide. You may also be owed money by HMRC, so read how to check if you are due a tax refund.
What can pensioners do?
- Add up your total income and see how close you are to the Personal Allowance or the higher rate threshold
- Use ISAs to shelter savings and investments from tax, especially before the dividend and savings tax rises
- Think about the timing of pension withdrawals to avoid moving into a higher tax band
- Check whether you can claim Marriage Allowance, worth up to £252 a year
- Review your will and estate plan before pensions come into inheritance tax
- Claim Pension Credit if you are on a low income. Read our guide to Pension Credit
The next Budget is due on 28 October 2026, so some of this may change. We will update this guide when it does.
If my pension has gone up, Why aren’t I getting the 4.1% added to my pension ?
Hi Jill,
Thanks for your comment! That’s a really common question, and it can depend on a few factors.
The 4.1% increase applies to the full new State Pension, but not everyone receives the full amount — it depends on your National Insurance record. If you’re on the basic State Pension or have protected payments or deductions (like from a contracted-out pension), your increase might be smaller or look different.
Also, some payments like Pension Credit or other benefits might offset how much increase you actually see.
If you’re unsure, you can check your personal pension details on the Gov.uk State Pension page or speak with the Pension Service at 0800 731 0469.
Hope this helps!
— The Retirement Pasta Team