HMRC, the Labour Party government’s tax arm, could slap hundreds of thousands of older people with unexpected demands for their cash.
HMRC, the Labour Party government’s tax arm, could slap hundreds of thousands of older people with unexpected demands for their cash.
420,000 state pensioners look set to be hit with unexpected tax bills for the first time from HMRC. HMRC, the Labour Party government’s tax arm, could slap hundreds of thousands of older people with unexpected demands for their cash.
8.7 million people over state pension age, born before 1959, are expected to pay income tax in 2025/26. That’s an increase of around 420,000 compared to the previous year, and nearly two million more than in 2015/16.
David Brooks, head of policy at consultancy Broadstone, said: “We would expect a growing number of pensioners to be liable for income tax as the country’s demographic changes due to our ageing population.
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“Fiscal drag, however, is also bringing hundreds of thousands more pensioners into paying Income Tax bracket every year as the frozen Personal Allowance thresholds combines with the triple lock-protected state pension.”
Mr Brooks warned: “While perhaps personally frustrating for many pensioners, it reflects the nature of inflation linked occupational pensions and a Triple-locked State Pension that continue to rise.
“The Government will be called on again to protect pensioners from this impact but with seemingly few ways to control the rise in pensioner incomes, taxation is the only tool left.”
He said: “We should also expect the income tax from pensioners to rise in coming years as more income will to be taken from pensions.
“Taking pension income is the key way to protect pension benefits from the impact of the Inheritance Tax Rules on unspent pension funds due to come in from April 2027.”
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.”
She explained: “Pensioners are not shielded from it either – over one million people above state pension age will breach the higher rate 40 per cent threshold this tax year, more than double the number there were when the big freeze began.”