Government Response

The Government responded to this petition on Thursday 25th April 2024

The tax treatment of social security benefits is based on the type of payment and why it is provided. Generally, benefits that are designed to replace income are taxable, including the State Pension.

The Government is committed to keeping taxes low to support working people keep more of what they earn and making the UK a more attractive place to live and work, whilst also ensuring the UK’s economic stability.

The tax treatment of social security benefits is based on the type of payment and why it is provided. Most state benefits are non-taxable, including Universal Credit that is designed to support those with low incomes. In general, benefits designed to replace income are taxable, including the State Pension.

The Government is also committed to ensuring that older people can live with the dignity and respect they deserve, and the State Pension is the foundation of state support for them. In April, the Government uprated the basic and new State Pension by 8.5 per cent, in line with earnings and the Triple Lock which will support the income of over 12 million pensioners. As a result, the full weekly rate for the basic State Pension has increased from £156.20 to £169.50 and the new State Pension has increased from £203.85 to £221.20. A basic State Pension is now worth up to nearly £700 a year more in 2024-25 than in 2023-24 and a new State Pension worth up to £900 more. The full yearly amount of a basic State Pension is now £3,700 higher, in cash terms, than in 2010.

The Personal Allowance (PA) - the amount of income that each individual may receive before paying income tax - is currently set at a level high enough to ensure that those pensioners who have not deferred their State Pension or receive a protected payment, and whose sole income is the full new State Pension or basic State Pension do not pay any income tax. For those individuals above the State Pension age who continue to work, many will pay a lower rate of tax on their income from work as they do not pay National Insurance.

Pensioners benefit from Winter Fuel Payments which meet a specific cost, designed to support pensioners heating their homes in the winter months as well as housing benefit, both of which are not taxable. The Government provides further support for pensioners through free eye tests, free NHS prescriptions, and free bus passes.

The Government also supports low-income households through the tax system. The Government has nearly doubled the PA since 2010. In 2024-25, it will be over 20% higher in real terms, ensuring some of the lowest earners do not pay income tax, including pensioners.

Exempting the State Pension and other benefits from income tax would add complexity to the tax system and those paying higher rates of tax would receive the greatest benefit. Individuals earning above the higher rate threshold would benefit more than those with incomes below, and those earning below the PA would not benefit at all.

As with all aspects of the tax system, the Government keeps the taxation of the State Pension and other benefits under review, and any decisions on future changes will be taken by the Chancellor in the context of the wider public finances.

HM Treasury