1.2 million more pensioners forced to pay taxes under Boris Johnson


More than 400,000 pensioners will be forced to pay income tax this year due to government-imposed threshold freezes, an analysis has found.

An additional 1.2 million over-65s have been dragged above the tax-free personal allowance since the last general election, and more than 7.7 million now pay pension and income tax, according to new official figures.

It means millions of pensioners with modest private pensions will lose chunks of next year’s 10% triple-locked state pension pay rise to the taxman – leaving them with a pay cut in real terms.

As the state pension, now worth more than £9,600 a year, edges closer to the personal allowance of £12,570, UK pensioners are paying up to five times the tax rate they were paying there ten years ago, reveals an analysis by the consulting firm LCP.

Pensioners, who once received an extra tax-free allowance, will now face their heaviest tax burden on record next year, figures show.

A pensioner with a company pension equal in value to the state pension will pay £1,337 in income tax next April, at an effective rate of 6.9%, LCP found. The same pensioner would have paid just £135 in tax 10 years ago, the equivalent of 1.2% of income.

It comes as the state pension is set to rise by a record £1,000 next April, as the government has promised to honor its ‘triple lockdown’ promise, which ensures the benefit increases at the higher of inflation, wage growth or 2.5%.

However, millions of pensioners will be caught in a stealth tax trap because the Chancellor has frozen the personal allowance for five years. The threshold would normally increase with inflation to ensure that the overall tax burden does not increase as wages and pensions rise as prices rise.

That means people over 66 won’t get the full anti-inflation boost, which is designed to protect them from the rising cost of living. Instead, £200 of the £1,000 increase will be clawed back by the tax authorities for base rate taxpayers and £400 for pensioners with an income above £50,270.

An age allowance allowed people aged 65-74 to earn an extra £2,395 on top of personal allowance before facing income tax, but the help was scrapped by the former Chancellor George Osborne from 2013.

Around 1.3 million working retirees will also have to pay the new 1.25% health and welfare tax from next April.

Sir Steve Webb, a former pensions minister and now a partner at LCP, has warned pensioners that the taxman will be waiting to ‘take their share’ of their 10% triple-locked raise.

He said: “When pensioners have income other than the state pension, they are likely to pay a much higher tax rate today than ten years ago, and that tax rate will increase further in the coming years due to the freezing of tax allowances until the mid-2020s”.

Steven Cameron of Aegon, the pensions group, said the Treasury’s five-year personal allowance freeze was “unfair” during a time of high inflation and must now be reviewed.

He said: ‘It is very hard to force the low earners and the most vulnerable during the cost of living crisis to pay tax by freezing the personal allowance. This adds a very significant burden for many.


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