Many more people above State Pension age will breach the higher rate 40% tax threshold this year – here are more details
Many more pensioners could face extra tax payments(Image: Getty images)
A money expert has warned that more than a million people on State Pension face a 40% tax blow this year due to a “stealth” rule. More pensioners across the UK are set to pay the higher rate of income tax as frozen tax thresholds push increasing numbers into the 40% bracket.
Figures from the Department for Work and Pensions show that 13 million people have reached State Pension age across Britain, with 8.51 million pensioners paying income tax in the last financial year. Charlene Young, senior pensions and savings expert at AJ Bell, warned that “the nation has fallen victim to the effects of fiscal drag in recent years.”
She explained that “frozen allowances and tax thresholds have pulled more people into the tax system for the first time and hiked the rates of tax people pay as their income rises and they breach a new tax band.” The pensions expert further highlighted that “pensioners are not shielded from it either – over one million people above State Pension age will breach the higher rate 40% threshold this tax year, more than double the number there were when the big freeze began.”
Ms Young noted that “the UK Government is in a straitjacket thanks to its own fiscal rules, and these figures will bolster the arguments of those calling for State Pension reform.” “The full ‘new’ State Pension is close to breaching the tax-free Personal Allowance, and many pensioners already receive well above this thanks to the way benefits could be built up under the old system,” she added.
The pensions expert questioned whether the Government can “really continue to ignore calls for further reform”. Each of us has a personal allowance. This is the amount we can earn without paying any income tax and is therefore tax-free, reports BirminghamLive.
If you earn more than your personal allowance, you pay tax at the applicable income tax rate on all earnings above the personal allowance, which is your taxable income, but the allowance itself remains untaxed.
What is taxed
You pay tax if your total annual income adds up to more than your Personal Allowance. Find out about your Personal Allowance and Income Tax rates here.
Your total income could include:
- the State Pension you get (either the basic State Pension or the new State Pension)
- Additional State Pension
- a private pension (workplace or personal) – you can take some of this tax-free
- earnings from employment or self-employment
- any taxable benefits you get
- any other income, such as money from investments, property or savings
Current tax rates and allowances
How much Income Tax you pay in each tax year depends on:
- how much of your income is above your Personal Allowance
- how much of your income falls within each tax band
The current tax year is from 6 April 2025 to 5 April 2026. The standard Personal Allowance is £12,570, which is the amount of income you do not have to pay tax on.
Here is a look at the Income Tax rates and bands:
More information about tax when you get a pension is available here. The Government website includes details about how your tax is paid and what is tax free.