The Budget contained some relatively modest but important changes for individuals, including a new Pension Tax Allowance (as announced in Budget 2025), an increase in the Trading Allowance and a continued freeze in the main income tax thresholds. 

A new Pension Tax Allowance 

From 6 April 2027, a new Pension Tax Allowance will protect people above State Pension age or, who reach State Pension age during the tax year from a small income tax bill arising simply because the full new State Pension has moved above the frozen Personal Allowance. 

For 2027/28, the full new State Pension will be £13,036.40, compared with the standard Personal Allowance of £12,570. The new allowance will therefore provide an income tax reduction of up to £94 for eligible individuals whose total income does not exceed the full new State Pension. 

The relief is not restricted to State Pension income: eligibility is based on total income, regardless of whether that comes from pensions, employment, self-employment, savings, property or dividends. For those with income slightly above the full new State Pension, the allowance will be tapered away at £1 for every £3 of additional income and will be fully withdrawn once total income reaches £13,319 for 2027/28.  If your total income is between £13,037 and £13,319 you will receive some of this new allowance. 

HMRC will apply the Pension Tax Allowance automatically, so no claim should be required. It is intended to operate initially for three tax years, from 2027/28 to 2029/30. 

Although welcome, the measure is narrowly targeted. Pensioners with even modest amounts of additional taxable income may receive only part of the allowance, or none at all. The wider issue of frozen income tax thresholds therefore remains relevant for many retirees. 

Trading Allowance increases to £3,000 

There is better news for people with smaller amounts of self-employed or casual trading income. From 6 April 2027, the Trading Allowance will increase from £1,000 to £3,000.  This also increases the trade reporting threshold to £3,000 for Self Assessment. 

The higher threshold should take some individuals with relatively modest trading receipts outside the income tax charge on that income, as well as simplifying their tax affairs. It may be particularly helpful to those undertaking occasional freelance work or running a small side business. 

As with the existing allowance, individuals will still need to consider whether claiming the allowance or deducting their actual allowable expenses produces the better result, particularly where genuine business costs are significant. 

Personal Allowance remains frozen 

The standard Personal Allowance remains £12,570, with the higher-rate and additional-rate thresholds also frozen at £50,270 and £125,140 respectively, until 2030/31. 

Freezing thresholds can increase the amount of tax people pay even when headline income tax rates do not change. As earnings, pensions and other income rise, more taxpayers are drawn into tax or into higher tax bands (often described as “fiscal drag”). 

The new Pension Tax Allowance addresses one very specific consequence of that freeze for lower-income pensioners, but it does not change the broader effect for other taxpayers. 

What should taxpayers do? 

None of these measures requires immediate action, as the new Pension Tax Allowance and increased Trading Allowance do not take effect until 6 April 2027. However, they are worth factoring into forward tax planning. 

Individuals approaching State Pension age should consider their total retirement income, rather than looking at the State Pension in isolation. Those with smaller trading activities should review whether the increased Trading Allowance changes the most efficient way to calculate their taxable profits. More generally, taxpayers should remain alert to the effect of frozen thresholds as their income changes. 

As ever, the impact will depend on individual circumstances, so professional advice may be appropriate where income comes from several sources or more detailed planning is required.