Freeze sees 1m extra pensioners hit by tax as £20/month alert issued | Personal Finance | Finance | EUROtoday

The variety of pensioners paying revenue tax has surged by greater than 1,000,000 in a 12 months, with at the least 22 per cent of taxpayers now aged over state pension age.

HM Revenue & Customs figures launched right this moment for the 2023-24 tax 12 months reveal that there have been 8.16 million taxpayers aged over 66, up from 7.14 million the earlier 12 months. The sharp improve got here as state pension rises and frozen revenue tax thresholds pushed extra aged folks into paying 20 per cent fundamental fee tax on their retirement revenue.

The variety of folks of all ages paying 45 per cent additional-rate tax rocketed 57 per cent from 569,000 in 2022-23 to 893,000 in 2023-24. This was predominantly because of the additional-rate threshold being slashed from £150,000 to £125,140 in April 2023.

The fundamental and higher-rate revenue tax thresholds have remained frozen at £12,570 and £50,270 since 2021. All three thresholds are scheduled to remain unchanged till 2031, that means that as salaries improve, rising numbers of individuals will probably be pulled into larger tax brackets.

Some 2.17 million extra folks paid basic-rate revenue tax in 2023-24 than the 12 months earlier than, whereas the variety of 40 per cent higher-rate taxpayers rose 12.8 per cent (654,000) to five.76 million.

A full new state pension is price £12,548 yearly – £22 beneath the essential fee tax threshold, often known as the tax-free private allowance. This signifies that pensioners with even modest supplementary revenue now face a tax invoice. Next 12 months, anybody receiving the total state pension might need to pay revenue tax on their funds as a result of the triple lock ensures that they’ll go up in keeping with wages, inflation or by 2.5 per cent — whichever is highest.

In November, Chancellor Rachel Reeves pledged that pensioners whose sole revenue was the state pension wouldn’t face any tax legal responsibility on it. However, the exact mechanics of how this will probably be applied stay unclear.

Dennis Reed from the pension marketing campaign group Silver Voices mentioned: “These figures are no surprise. Each year the frozen lower income tax band means that more and more older people are being dragged into the tax system. “By the top of this parliament the overwhelming majority of retired folks on this nation will probably be paying tax – this can be a stunning scenario. Most retired folks aren’t incomes revenue from work so what’s being taxed is the state pension and any additions to the state pension akin to a widows’ pension or a small personal or occupational pension.

“Just £20 to £30 extra a month can push you into being taxed and when people are struggling anyway with the cost of living the last thing they need is to be taxed too.”

HMRC confirmed {that a} revised methodology was launched for the 2023-24 tax 12 months, accounting for 196,000 of the extra million pensioners now topic to taxation. The tax authority additional famous that shifting demographics, coupled with rising pensioner incomes, had been accountable for the rise.

Rachael Griffin from wealth supervisor Quilter mentioned: “These figures show how frozen tax thresholds are completely reshaping the tax profile of the country. Given that we are not expecting to see any changes to thresholds until 2031, these dynamics look set to intensify rather than unwind. “This shift is not confined to historically excessive‑paid professions. Experienced lecturers, senior nurses and cops are more and more being pulled into larger‑fee tax by incremental pay rises, time beyond regulation or development, reasonably than genuinely excessive earnings. What was as soon as a marginal challenge is now changing into a mainstream expertise throughout massive components of the workforce.”