Over one million retirees now in higher tax brackets as frozen thresholds hit pension income
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TL;DR
- Over one million pensioners are now paying the 40% higher rate of income tax, a figure that has doubled in five years.
- The number of pensioners paying the 45% additional rate has tripled to 115,000.
- The freeze on income tax thresholds, lasting until 2031, is a major driver of this trend, with the tax-free personal allowance remaining at £12,570.
- Inflation-linked increases to state pensions and other retirement incomes, combined with frozen tax bands, are pushing more retirees into higher tax brackets.
- Experts advise individuals planning for retirement to factor in the likelihood of paying 40% or more in tax on their pension income.
- More than ten million pensioners are currently paying income tax, a new record.
- The government is expected to collect an additional £18 billion in income tax in the past twelve months due to these freezes.
- Unwinding the tax threshold freeze would offer relief but create a significant deficit in public finances.