Millions of pensioners could be facing another major blow as they are pushed into paying income tax while the personal allowance threshold stays frozen. At the same time, pension payments continue to rise, resulting in a higher number of retirees being slapped with a tax bill. A new House of Commons Library report published this week outlines the growing concern among Brits.
Since 2021/22, the personal allowance band has been frozen at £12,570, however, the state pension continues to increase due to the triple lock. This combination is pushing an increasing number of retirees into paying a levy on their retirement income. State pension is subject to income tax, the report states, yet it’s paid by the government without tax being deducted first.
This is leaving many retirees baffled when the tax bill is delivered to their home.
Pensioners whose sole source of income was the state pension were previously exempt from paying income tax, due to their annual income being lower than the personal tax allowance.
Due to the Government’s triple lock guarantee still in place, while hiking up the basic and new state pension, the historic rule is changing.
With the personal tax allowance staying frozen, financial expert Fiona Peake of Ocean Finance has warned of the situation affecting a large number of pensioners.
“Nearly 18 million more people are expected to be paying income tax by 2027, and almost half of them will be over 60,” she told GB News.
With a higher number of pensioners being forced to pay tax on their state pension, it highlights a significant change in how retirement income is taxed.
Ms Peake explained that the full new state pension, which is £221.20 a week, or £11,500 a year, is “just a few hundred pounds shy of the personal allowance”.
“Add even a modest private or workplace pension, and suddenly you’ve got a tax bill,” she added.
“With inflation expected to rise again this year, it’s yet another blow to pensioners’ pockets.”
The expert points to the tax not being an official rise on paper, yet it “feels like one in practice”.
