Frozen income tax thresholds will see up to 1.6m more pensioners breaching the £12,570 personal tax threshold by 2028, research suggests.
As many as 1.6 million more pensioners will be paying income tax within the next four years due to frozen tax thresholds and the rising value of the state pension, according to the Telegraph.
Analysis for the House of Commons Library found that up to 9.3 million pensioners will find themselves liable for the tax in the four years until 2028 if the threshold at which people start paying income tax remains frozen at its current level of £12,570.
That is around 1.6 million more people than would have been the case if the threshold had risen along with inflation since 2021, found the research, which was commissioned by the Liberal Democrats.
Chancellor Jeremy Hunt last year extended a pre-existing freeze on the threshold by two years until April 2028, resisting pressure to raise the threshold in line with inflation.
At the same time, pensioners’ incomes have grown because of the triple lock, a measure which increases the state pension by the highest of earnings growth, consumer price index (CPI) inflation, or 2.5%. The state pension will increase by 8.5% next month in line with CPI under the triple lock, meaning it will hit £11,502.
A recent analysis by AJ Bell found that the state pension could rise to £12,598.31 by 2027/28, surpassing the personal tax threshold, and hit over £13,000 by 2030 if the triple lock is retained.
The Conservative party has committed to including the triple lock in its manifesto, but Labour, which currently has a significant poll lead, has not yet pledged to retain the triple lock should it come to power.
Former pensions minister Ros Altmann said it was worrying that more pensioners could be ‘dragged into the tax net’.
‘The full new state pension has now reached 92% of the £12,570 personal tax threshold… so just a small amount of extra income either from other pensions or savings, will tip more [people] into tax liabilities,’ Altmann said.
She also called on the government to increase the personal tax threshold, which was frozen in 2021/22, to be in line with inflation.
‘Obviously an increase in the personal tax threshold… would alleviate some of the pressure, especially as inflation has been so high in the past couple of years,’ Altmann said.
Nicola Blackburn (CityWire)