9.5 million people facing tax bill over frozen rule ahead of 2027 | Personal Finance | Finance
New HMRC figures have revealed nearly three million more pensioners have seen their incomes dragged into tax liability since the income tax thresholds were frozen in 2021. As a result, nearly a quarter of all taxpayers are now over the state pension age according to the Telegraph.
Figures show that 9.5 million pensioners are to be hit with tax bills this year. But millions more are expected to be joining this group of unexpected taxpayers next year as the full new state pension will overtake the personal allowance limit.
The full new state pension, which is currently worth £12,547.60 per year, is guaranteed to cross the personal allowance limit of £12,570 next April due to the annual triple lock increase. Once past this limit, pensioners could face 20% income tax on their total income up to £50,270.
This total income includes:
- money you earn from employment
- profits you make if you’re self-employed, including from services you sell through websites or apps – you can check if you need to tell HMRC about this income
- some state benefits
- most pensions, including state pensions, company and personal pensions and retirement annuities
- rental income (unless you’re a live-in landlord and get less than the Rent a Room Scheme limit)
- benefits you get from your job
- income from a trust
- interest on savings over your savings allowance
HMRC’s figures revealed that 9.58 million pensioners are expected to pay tax in the 2026-2027 tax year. An extra 500,000 than the previous tax year and 2.84 million more than in the 2021-2022 tax year when the income tax thresholds were first frozen.
Rachel Reeves has extended the freeze on these thresholds until April 2031. Meaning that with each annual rise from the triple lock, more and more pensioners could be dragged into tax bills.
Analysis by LCP found more than seven in 10 pensioners pay tax. Sir Steve Webb, a former pensions minister, now of LCP, told the Telegraph: “The surge in older people paying income tax is continuing, with record numbers of taxpaying pensioners in 2026-27.
“The recent extension of the freeze in personal allowances, combined with the continued generous indexation of the state pension means that even more people in retirement can expect to become taxpayers for the first time in the coming years.”
Although the full new state pension is edging closer to the personal allowance, DWP data from 2024, analysed by Royal London, showed just over half of the people receiving the new state pension got the full amount.
While the rest were receiving only a portion of it equivalent to their National Insurance record. To claim the full new state pension, you need a minimum of 35 qualifying years.
A qualifying year counts as a full year you paid National Insurance or received National Insurance credits. If you have between 10 and 35 years you can still get part of the new state pension. But if you have less than 10 years you won’t receive any.
