More than one million pensioners now pay higher rate income tax as frozen thresholds continue to bite
More than one million pensioners are now paying higher rate income tax as frozen thresholds continue to bite, new figures from HM Revenue & Customs reveal.
Some 904,000 people of state pension age or older are now paying 40 per cent income tax while 124,000 are paying 45 per cent, according to a freedom of information request obtained by former pensions minister Sir Steve Webb.
While tax thresholds remain frozen, modest earners have been dragged into higher tax bands in a process known as fiscal drag.
This has caused the number of pensioners paying a higher rate of income tax to double in just four years, the data reveals.
Basic rate taxpayers must pay 20 per cent in tax on earnings over the £12,570 tax-free personal allowance.
While higher rate taxpayers lose 40 per cent of an income between £50,271 and £125,140. Additional rate taxpayers must pay 45 per cent on earnings more than £125,140.
State pension payments increase by the highest of inflation, earnings growth or 2.5 per cent under the triple lock mechanism – and the full, new state pension was hiked to £11,973 this April.
This means pensioners withdrawing just a small income from a personal pension on top of the full state pension are now paying basic rate income tax – leading to 8.8 million now paying income tax compared to 6.7million four years ago.
Thresholds are due to move in line with inflation from 2028 but vulnerable retirees relying on the state pension alone could be dragged into paying income tax as soon as next year.
Sir Steve, now a partner at consultancy LCP, says the effects of frozen thresholds are not just limited to income tax but are a 'triple whammy' for higher and additional rate taxpayers.
He adds: 'Not only does this mean more tax on income from state and company pensions, it also means pensioners are paying more tax on their savings as their personal savings allowance is cut.'
While basic rate taxpayers have a personal savings allowance of £1,000 – the amount of interest that can be earned on savings before paying tax – higher rate taxpayers get just £500. Those in the additional rate band have none at all.
This means a pensioner with an income of £50,271 – just £1 over the basic rate thresholds – will have their tax-free savings allowance slashed in half. For example, on £1,000 savings interest they will now have to pay £200 to the taxman.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Scottish Sun
18 minutes ago
- Scottish Sun
Thousands of Scots families entitled to childcare benefit that could save £2,000 – find out how to apply
Read on to check if you're eligible for the scheme CASH BOOST Thousands of Scots families entitled to childcare benefit that could save £2,000 – find out how to apply SCOTTISH families are being urged to sign up for a benefit to help with childcare. The HMRC's Tax-Free Childcare scheme is a cash injection to help with babysitting arrangements during the summer holidays. Advertisement 2 The taxman is urging Scottish families to sign up for a cash payment Credit: Alamy Latest figures show 36,095 families in Scotland are already benefiting from the scheme. Parents can put the cash boost towards the cost of approved childcare, including nursery for younger children. The handout can be used for older children's after-school clubs during term time, or holiday clubs over the summer break. HMRC boss Myrtle Lloyd: "Summer can be an expensive time if you have children. Advertisement "Whatever you're planning, Tax-Free Childcare can give your plans a welcome financial boost. Go to to start saving today.' For every £8 deposited in a Tax-Free Childcare account, the government tops it by £2. This means parents can receive up to £500 - or £1,000 if their child is disabled - every three months towards paying for their childcare costs. Once families have opened a Tax-Free Childcare account, they can deposit money and use it straight away. Advertisement Or it can be kept in the account to use it whenever it's needed. Any unused money in the account can be withdrawn at any time. Our once-booming town has become a benefits sinkhole where HALF of adults are out of work & bored, feral kids set homes alight with fireworks Families could be eligible for Tax-Free Childcare if they: Have a child or children aged 11 or under. They stop being eligible on 1 September after their 11th birthday. If their child has a disability, they receive up to £4,000 a year until 1 September after their 16th birthday The parent and their partner (if they have one) earn, or expect to earn, at least the National Minimum Wage or Living Wage for 16 hours a week, on average Each earns no more than £100,000 per annum Do not receive Universal Credit or childcare vouchers Visit to check eligibility and register for Tax-Free Childcare. Advertisement In some cases, Tax-Free Childcare can be used alongside the free childcare hours.
Telegraph
19 minutes ago
- Telegraph
Labour urged to publish rent reforms impact report as eviction delays soar
Ministers are being urged to publish a report into the impact of rental reforms on the courts as landlords face eight-month delays to repossess their property. Government departments are required to complete a justice impact assessment for any new bills that are likely to impact the UK courts system. Labour's Renters' Reform Bill is set to become law this summer and will include the removal of Section 21 'no-fault evictions'. There are fears the change will force landlords to rely on the courts to regain possession of their properties, adding to existing backlogs. Private landlords faced an eight-month wait from making a claim to the courts to their properties being repossessed in the first four months of 2025, according to the latest government data. Chris Norris, chief policy officer for the National Residential Landlords Association, said: 'The justice system is simply not ready for the impact of the Bill. 'In the interests of transparency, the Government should publish the Justice Impact test. The Government also needs to come clean about how it defines the courts being ready for the reforms. Warm words are no substitute for clear objectives for the justice system.' Justice impact assessments are an internal process and not usually published by government departments, but previous ministers have committed to publishing court reviews ahead of implementing rental reforms. The former Levelling Up, Housing and Communities Committee in a 2023 report said: 'It is not clear whether the Government fully appreciates the extent to which an unreformed courts system could undermine its tenancy reforms.' Furthermore, in a consultation in 2022, the then-government acknowledged that Section 21 was preferred by landlords to other means of eviction – such as Section 8 – as it was perceived as 'quicker and more certain'. Richard Atkinson, president of the Law Society, said of the Renters' Rights Bill: 'The bill will not be effective without further investment in the justice system.' Mr Atkinson also urged the Government to 'provide greater funding and more clarity to the enforcement provisions so that justice is accessible to renters and landlords alike'. In addition to concerns about the justice system, a report has warned impacts of the bill will add almost £900 a year to the average tenancy. The legislation will limit landlords to just one rent increase per year capped at the 'market rate' – the price that would be achieved if the property was newly advertised to let. Landbay said property owners were planning to increase rent by an average of 6pc, which would add £74 to the average monthly rent, or £888 a year. Dr Neil Cobbold, director at property software company Reapit UKI, said: 'The Government's decision not to share the Renters' Rights Bill justice impact test raises serious questions about transparency and accountability. The estimate of changes in the number of court and tribunal cases is a vital tool for understanding how the legislation will affect the property sector – including case volumes – and whether the justice infrastructure is in place to support the change.' The Bill is currently going through the House of Lords before being sent back to the Commons and is expected to receive Royal Assent by summer 2025 and be implemented before the end of the year.
BBC News
22 minutes ago
- BBC News
Trump's trade tariffs 'to hit NI growth and jobs'
A US tariff of 10% on UK goods could cost the Northern Ireland economy £85m and 800 jobs over the next 15 years, a Department for the Economy study has does not mean the economy will shrink in absolute terms, rather it will be smaller than it would have been if the tariffs had not been study only considers the direct effects on Northern Ireland exports rather than any secondary impact would rise to a £110m loss of potential economic output if US President Donald Trump was to impose a 20% tariff on pharmaceuticals. Pharmaceuticals is the part of the Northern Ireland economy which is most exposed to Trump tariffs as almost half of the sector's export sales go to the study suggests a 20% tariff would mean pharmaceutical sector output would be around 5% lower compared to a no tariff are effectively a tax on imported goods and are a major part of Trump's economic policy. Since re-entering office in January, he has raised tariffs on specific items such as steel, aluminium, and cars and imposed a blanket 10% levy on most goods from trading partners around the had briefly targeted some countries' exports with even higher tariff rates, only to suspend those measures for 90 days to allow for talks.A US trade court has ruled that an emergency law invoked by Trump did not give him the unilateral authority to impose the blanket 10% those tariffs are still being collected while the Trump administration appeals the administration is also conducting a national security investigation into pharmaceutical imports, a process which would provide a more solid legal basis to impose tariffs on that sector. 'A significant headwind' The study concludes that tariffs will "adversely affect local businesses and represent a significant headwind for businesses when trying to grow exports over the longer term"."It is also likely that many of the businesses impacted will be in specific geographic areas e.g. Mid Ulster and Armagh, Banbridge and Craigavon council areas," it says."This is due to the importance of the manufacturing and pharmaceutical industries to these areas, which will have implications for the regional balance agenda being taken forward by the department."
