The Sun previously revealed that 8.2million people over 60 will be dragged into paying income tax by 2028 thanks to the Conservative Party and Labour Party’s freezing of tax thresholds.
Millions of pensioners are set to pay an extra £3,019 in a huge retirement tax bill. The Sun previously revealed that 8.2million people over 60 will be dragged into paying income tax by 2028 thanks to the Conservative Party and Labour Party’s freezing of tax thresholds.
A typical pensioner earning £327 a week (before housing costs), which amounts to an annual income of £19,189, is expected to pay £9,261 in income tax by 2028. If income tax thresholds had risen in line with inflation since 2021, this amount would have been lower at £6,242.
Shaun Moore, tax and financial planning expert at Quilter: “Due to years of unchanged thresholds, pensioners are gradually being pulled into paying more tax.
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“What was once considered a modest retirement income is now subject to increasing levels of tax each year as tax bands remain frozen in time. This has led to an unexpected additional £3,000 tax burden that many pensioners were not prepared for.
“Although it may not seem like a tax hike, the financial strain is very real for those on fixed incomes.” Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Pensioners were paying a significant chunk of tax.”
However, she warned: “Frozen tax thresholds, coupled with increased state pensions, may pull more pensioners who are solely reliant on state pension into taxpaying territory.”
Moore, tax and financial planning expert at Quilter, added: “Pensioners are often among the worst hit by frozen tax allowances.” He explained that this is because they often also rely on income from various investments, making them more dependent on capital gains tax and dividend allowances to supplement their pension.
Mr Moore added: “It is vital that people look across the spectrum of financial products that provide tax efficiency and use them in the right way.”
Ms Morrissey explained: “For instance, you can make use of the tax-free income from an ISA alongside your pension or employment income to make sure you don’t breach a threshold into paying tax at a higher rate.”
