But experts have warned this could lead to pensioners facing a “triple whammy” of tax rises, with those who cross into higher tax brackets facing two additional financial hits to income tax – more tax on their savings income and higher capital gains tax (CGT).
In 2021/22, just 494,000 pensioners were in the higher or additional tax (45 per cent) bands.
With inflation and wage growth pushing up incomes, more individuals, including large numbers of pensioners, are now crossing key tax thresholds and facing heavier tax burdens as a result.
“Not only does this mean more tax on things like income from state and company pensions, it also means these pensioners are paying more tax on their savings, as their personal savings allowance is cut, and a higher rate of capital gains tax – a ‘triple whammy’.”
square SAVING AND BANKING The new loophole that could save expats huge sums on inheritance tax
Read More
Over the same period, the number of those paying tax at 40 per cent or more has more than doubled.
The proportion of taxpaying pensioners who fall into the higher or additional rate brackets has climbed from around one in 14 four years ago to around one in nine today.
This surge has been fuelled by a combination of factors, according to Sir Steve, including:
The freeze in the personal allowance and higher rate thresholds since 2021. Above-inflation increases in the state pension and inflation-linked private and workplace pensions. A cut in the threshold for additional rate tax from £150,000 to £125,140 in 2023/24.Most taxpayers are entitled to a personal savings allowance (PSA), which allows some interest income to be earned tax-free.
This means a pensioner with £1,000 of interest income who is just within the basic rate band pays no tax on that amount.
Similarly, CGT rises sharply for those in the higher tax band. Basic rate taxpayers pay 18 per cent CGT on most gains.
It comes amidst news that hundreds of thousands of pensioners have been hit with unexpected tax demands with HMRC issuing some 1.32million ‘simple assessments’ to pensioners in the 2023/24 tax year, up 74 per cent from the year before.
They save pensioners having to complete a self-assessment tax return but will be a surprise to those who do not believe their income exceeds the personal allowance of £12,570.
The Government has committed to freezing income tax thresholds until April 2028. Although the increase in state pension age from 66 to 67 between 2026 and 2028 may slightly dampen growth in the affected population, more pensioners are still likely to be caught in the net.
He said: “The higher rate threshold has become a real cliff-edge over which growing numbers of pensioners are falling.”
HMRC has been contacted for comment.
Read More Details
Finally We wish PressBee provided you with enough information of ( More than one million pensioners pay 40% tax in ‘triple whammy’ of stealth rises )
Also on site :