Pensioners can increase tax-free income to £18,570

State pensioners are being encouraged to boost their tax-free Personal Allowance to £18,570 by taking advantage of a loophole. Normally, pensioners have a Personal Allowance of £12,570, which means they can earn this amount without paying any Income Tax. This applies to income from state pensions, private pensions, and work. However, there is a way to increase this tax-free amount. If pensioners earn less than £18,570 a year, they can benefit from the Starting Rate for Savings, which adds an extra £5,000 tax-free allowance for savings interest income. If their total income from work or pensions is below £12,570, they can take full advantage of this allowance. Additionally, they can earn another £1,000 tax-free from the Personal Savings Allowance. Money expert Martin Lewis explains that if a pensioner earns less than £18,570 from all sources combined, they can have their savings interest income tax-free. For example, someone named Cheryl with £20,000 in savings interest would typically owe tax. However, because of the allowances, she would not pay tax on up to £18,570 of her income. If a pensioner's earnings exceed £12,570, they may lose part of the Starting Rate for Savings based on how much they earn above that threshold. HMRC has provided an example showing how earning £16,000 would affect tax calculations, reducing the Starting Rate for Savings accordingly. Pensioners who have already paid tax on their savings can reclaim that tax using a Self Assessment Tax Return and can even backdate their claim for up to four years.