A Budget plan would aim to stop pensioners on low incomes paying income tax. The reports name Healey. It is a proposal for the Budget. No tax code has changed.
Pension income is not, as a rule, tax-free. The state pension counts as taxable income, and so does most money from a workplace or private pension. You do not pay income tax on every pound. You pay it on income above the personal allowance, the slice you can receive before the tax starts. That allowance stands at £12,570, and it has been frozen while the state pension has risen. The freeze is why more pensioners have found themselves paying income tax at all. A plan to shield people on low incomes is aimed at that squeeze. The reports have not yet given a figure for who counts as on a low income, so the cutoff is still to come in the Budget itself.
Income tax
The personal allowance is set for the whole of the UK. The rates and bands are not. The Scottish Parliament sets the income tax rates and bands for Scottish taxpayers, and pension income is taxed under those Scottish bands. A pensioner in Scotland can pay different rates from a pensioner in England, Wales or Northern Ireland on the same income above the allowance. Any Budget measure has to live with that split. The allowance is the UK-wide part. The rates on income above it already differ in Scotland, and a shield that ignored that would not work the same way on both sides of the border.
A Budget plan is a statement of what the government intends to do. The tax change is written into law afterwards, in a Finance Bill, and it takes effect on the date that bill provides. Until then, HMRC does not recode a pension, and the tax taken from a pension payment stays as it is. Looking at your tax code, and at the taxable pay on your latest pension statement or P60, shows the position today. It will not show a relief that has not been legislated.
Before the Budget
Nothing in this report is a reason to assume your own bill will fall, or to delay a payment you already owe. If the measure is confirmed, the questions that matter will be practical: the income it covers, the tax year it starts, and whether Scottish rates need a matching decision at Holyrood. Those answers come in the Budget and the Finance Bill.
For now the reported fact is the intention. A plan, associated with Healey, to keep low-income pensioners out of income tax. The tax taken from pensions today is unchanged.
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