One in five pensioners will be “dragged” into paying higher or additional rate tax by the 2027/28 tax year due to the government’s frozen income tax thresholds.
A Freedom of Information request to HM Revenue and Customs, submitted by Quilter, found that 3.1mn pensioners could be at risk of paying more tax.
The analysis showed that 2.7mn people aged 60 and over will be brought into the higher rate of income tax in the tax years 2022-23 to 2027-28, while nearly half a million will be brought into the additional rate.
More than a third, or 1.3mn, are aged 70 or over.
Quilter head of retirement policy, Jon Greer, said: “The number of pensioners likely to pay higher and additional rates of income tax as a result of frozen thresholds is set to increase exponentially by 2028.
“Not only will this boost government coffers by stealth, but it looks likely that other tax increases are on the cards.
“With the Labour government’s first budget now just over two months away, it is vital that people are managing their finances tax efficiently to help reduce their overall burden.
“Those nearing retirement or semi-retired and still working should look to maximise their pension contributions whenever possible.
“They are especially beneficial for higher rate taxpayers, as you can currently receive up to 40 per cent tax relief on your contribution but will often only pay the basic rate of 20 per cent when you withdraw the money in the future.”
Quilter additionally pointed out that the Office for National Statistics population estimates show there are 16.8mn people aged 60 or over living in the UK.
This means the equivalent of almost an additional one in five are expected to be taxed at the higher or additional rate of tax due to the government’s frozen tax thresholds increasing tax by stealth.
Additionally, not everyone aged 60 and over will be paying income tax.
Therefore, the proportion of those who do pay income tax and are pulled into the higher and additional rates is likely to be even greater.
The chancellor has confirmed that tax increases are on the cards for October’s Budget.
Although given the Labour government has promised not to change income tax rates, making a decrease unlikely, more people will end up paying higher tax rates.
tom.dunstan@ft.com
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