𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

The number of pensioners paying income tax has surged by more than a million in a year, with at least 22 per cent of taxpayers now aged over state pension age.

HM Revenue & Customs figures released today for the 2023-24 tax year reveal that there were 8.16 million taxpayers aged over 66, up from 7.14 million the previous year. The sharp increase came as state pension rises and frozen income tax thresholds pushed more elderly people into paying 20 per cent basic rate tax on their retirement income.

The number of people of all ages paying 45 per cent additional-rate tax rocketed 57 per cent from 569,000 in 2022-23 to 893,000 in 2023-24. This was predominantly due to the additional-rate threshold being slashed from £150,000 to £125,140 in April 2023.

The basic and higher-rate income tax thresholds have remained frozen at £12,570 and £50,270 since 2021. All three thresholds are scheduled to stay unchanged until 2031, meaning that as salaries increase, growing numbers of people will be pulled into higher tax brackets.

Some 2.17 million more people paid basic-rate income tax in 2023-24 than the year before, while the number of 40 per cent higher-rate taxpayers rose 12.8 per cent (654,000) to 5.76 million.

A full new state pension is worth £12,548 annually – £22 beneath the basic rate tax threshold, also known as the tax-free personal allowance. This means that pensioners with even modest supplementary income now face a tax bill. Next year, anyone receiving the full state pension could have to pay income tax on their payments because the triple lock guarantees that they will go up in line with wages, inflation or by 2.5 per cent — whichever is highest.

In November, Chancellor Rachel Reeves pledged that pensioners whose sole income was the state pension would not face any tax liability on it. However, the precise mechanics of how this will be implemented remain unclear.

Dennis Reed from the pension campaign group Silver Voices said: “These figures are no surprise. Each year the frozen lower income tax band means that more and more older people are being dragged into the tax system. “By the end of this parliament the vast majority of retired people in this country will be paying tax – this is a shocking situation. Most retired people aren’t earning income from work so what is being taxed is the state pension and any additions to the state pension such as a widows’ pension or a small private or occupational pension.

“Just £20 to £30 extra a month can push you into being taxed and when people are struggling anyway with the cost of living the last thing they need is to be taxed too.”

HMRC confirmed that a revised methodology was introduced for the 2023-24 tax year, accounting for 196,000 of the additional million pensioners now subject to taxation. The tax authority further noted that shifting demographics, coupled with rising pensioner incomes, were responsible for the increase.

Rachael Griffin from wealth manager Quilter said: “These figures show how frozen tax thresholds are completely reshaping the tax profile of the country. Given that we are not expecting to see any changes to thresholds until 2031, these dynamics look set to intensify rather than unwind. “This shift is no longer confined to traditionally high‑paid professions. Experienced teachers, senior nurses and police officers are increasingly being pulled into higher‑rate tax through incremental pay rises, overtime or progression, rather than genuinely high earnings. What was once a marginal issue is now becoming a mainstream experience across large parts of the workforce.”