Three ways to combat Labour’s ‘retirement tax’ set to affect eight million pensioners have been revealed.
State pensioners are being urged to use three loopholes which will see them escape the HMRC retirement tax imposed by the Labour Party government. Three ways to combat Labour’s ‘retirement tax’ set to affect eight million pensioners have been revealed.
8.2 million people over the age of 60 will be dragged into paying income tax by 2027/28 under government plans, data from Quilter shows.
But there are ways to escape: opening an ISA, making the most of your other pensions (you can either do this as a lump sum or in smaller gradual amounts to top up your state pension without being taxed on it), and using Marriage Allowance.
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Laura Suter from AJ Bell said: “Pensioners looking to reduce their tax bill need to think about how they can maximise their tax-free income. For example, any withdrawals made from their ISAs will be free of any tax, so they can use that pot of money to boost their income without impacting their tax bill.”
Laura said: “You can take ad-hoc amounts or regular withdrawals from the pot to use your tax-free amount gradually. This is a great way of boosting your income but not increasing your tax bill.”
Helen Morrissey, from Hargreaves Lansdown, said: “The non-taxpaying partner can transfer £1,260 of their Personal Allowance to their partner.
“This reduces their own personal allowance so it might mean they end up paying some tax but the boost to the taxpaying spouse means you pay less tax overall as a couple.”
One of you needs to be a non-taxpayer. This usually means you’ll earn less than the £12,570 personal allowance between 6 April 2025 and 5 April 2026. To get the full benefit, the non-taxpayer actually needs to earn £11,310 or less.
The other partner needs to be a basic 20% rate taxpayer. This means you’d normally need to earn less than £50,270, or if you live in Scotland it’s £43,662. Higher or additional-rate taxpayers aren’t eligible for this allowance.
