Updates to the Pension (Tax Exemption) Rules and the Tax Rebate (Pensioners) Rules

S.L. 123.204 gradually exempts pension income over a five-year period starting in 2022. Legal Notice 356 of 2024 has revised thresholds applicable to exempt pension income earned on or after 1 January 2025 for 2025 and 2026. The updated table below shows the maximum exempt pension income over the five-year period as follows:

The exempted amount for 2026 will be subject to a revised capped amount as established by future budgets.
Pension income is defined under these rules as, ‘income from any pension chargeable to tax under Article 4(1)(d) of the Income Tax Act’ derived by an individual who is at least sixty-one years old in the year in which he receives the said income.

Tax Rebate on Pensions

Tax Rebate (Pensioners) Rules S.L. 123.174 grants a tax credit equal to the tax on pension income subject to a capped amount. The effect is that while the pension income, up to the allowed maximum, is not subject to tax, the non-taxed amount is taken into account in determining the tax rates on other income. All income except the exempt pension income as indicated in the above table is first to be charged to tax at the normal rates applicable at single, parent or married rates. The calculation of the tax rebate has been revised by means of Legal Notice 357 of 2024 with effect from 1 January 2025 as follows:

A further rebate is available when a married couple earns income over and above their pension. The above tax rebates which are available to both employed and self-employed may not give rise to any refund or be carried forward.