Autumn Budget 2026: Pension tax changes
The government has announced changes to reduce the tax burden for those in receipt of their pensions and beneficiaries of lump sum death benefit payments.
Pension tax allowance
From April 2027, individuals who are above state pension age, or reach state pension age within the year, could benefit from the pension tax allowance, giving tax savings of up to £94 in 2027/28.
The relief will be available to those whose total income is under £13,319, regardless of the source of income. Therefore, pensioners with savings, dividends and/or property income, and even those who have deferred their state pension, could still qualify for the relief.
For 2027/28, relief is available as follows:
| Total Income | Available relief |
| Less than £12,570 | Income is already fully covered by the personal allowance, so no further relief needed. |
| £12,570 – £13,037 | Full pension tax allowance (up to £94) |
| £13,037 – £13,319 | Partial pension tax allowance available |
| More than £13,319 | No relief available |
For 2028/29 and 2029/30 the pension tax allowance will be uprated in line with the full annual value of the new state pension.
The pension tax allowance is reduced by £1 for every £3 of income above the full annual value of the new state pension (£13,319 for 2027/28).
The relief will be applied automatically based on the information HMRC already holds on state pension age and income.
Pension and lump sum death benefits
From 28 October 2026, the beneficiaries of those who died under the age of 75 will no longer be subject to income tax charges on pension and lump sum death benefits where the funds have been paid more than two years after the members death. This is subject to the member having sufficient lump sum and death benefit allowances available.
The government has also announced that it will make changes to the way tax is assessed and collected where a deceased member’s lump sum death benefit allowance has been exceeded. This is to provide greater certainty to individual beneficiaries.
