Last updated: 16 October 2026
What was the granny tax, and who is affected now?
The “granny tax” was the nickname for the 2012 Budget decision to freeze and then remove the higher age-related personal allowances for people aged 65 and over. Since April 2016, everyone has the same personal allowance, whatever their age: £12,570 in 2026/27, frozen until April 2031. Pensioners who would once have had a bigger allowance now pay tax on income above £12,570. With the full new State Pension at £241.30 a week, or £12,547.60 a year, many pensioners are close to the threshold before any private pension.
Who is most affected
- Retirees with a State Pension plus a workplace or private pension
- People with savings income above their allowances
- Landlords in retirement
- Pensioners who work part-time
How pensioners are taxed
| Income | How tax is collected |
| State Pension | Usually through the tax code on another pension |
| Private or workplace pension | PAYE |
| Savings interest | Self Assessment or tax code |
| Rental income | Self Assessment |
Allowances still available
- Personal allowance £12,570
- Personal savings allowance £1,000 (basic rate)
- Starting rate for savings up to £5,000 for those on low income
- Dividend allowance £500
- Marriage allowance transfer of £1,260
- Blind person’s allowance
Example
Ron has the full new State Pension of £12,547.60 and a £10,000 workplace pension. His total income is £22,547.60, so he pays 20% on £9,977.60, or £1,995.52, collected through the tax code on his workplace pension.
State Pension only
The government has said people whose only income is the State Pension won’t need to pay small amounts of tax through Self Assessment, even if the pension rises above the personal allowance.
Common mistakes
- Not claiming marriage allowance
- Missing a tax refund on savings
- Forgetting to tell HMRC about new income
- Not checking pension tax codes
Records to keep
Keep pension statements, P60s and bank interest summaries.
Why the change happened
The higher age allowance had been worth up to £10,660 for those over 75 in 2012/13, compared with £8,105 for everyone else. As the main personal allowance rose quickly after 2010, the government froze the age allowances and let the basic allowance catch up. By 2016/17, the single allowance of £11,000 had overtaken them, so they were abolished.
Tax on savings for pensioners
If your other income is below £17,570, you may get some or all of the £5,000 starting rate for savings, so interest could be tax-free. Savings rates rise by 2 percentage points from April 2027, so check whether to move money into an ISA. The cash ISA limit stays at £20,000 for those aged 65 and over.
Checking your tax code
Your tax code on a workplace pension usually reduces your allowance by the State Pension amount. If you start the State Pension part way through the year, check that HMRC has used the right figure, as errors are common in the first year.
Frequently asked questions
Do pensioners pay National Insurance?
No, not after State Pension age.
Can I get the old age allowance back?
No, it ended in 2016.
Does my State Pension count as income?
Yes, it’s taxable.
Who checks my tax code?
HMRC, but check it every year.
Reducing tax in retirement
Planning when to take pension lump sums, using ISAs and spreading income between spouses can reduce tax. Taking 25% tax-free from pensions is still available, up to £268,275.
Related: paying tax on the State Pension, pensioners’ allowance and the marriage allowance.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with pensioner tax advice. See our self assessment accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
