Pensioners to be hit by post-retirement tax bill | Personal Finance | Finance
As many as 140,000 pensioners are set to receive their first tax bill since retiring due to “fiscal drag”. A failure to raise tax thresholds in line with inflation, wages and pensions means record numbers of retired people will get a tax bill this year.
The decision by the last government to freeze the tax free personal allowance at £12,470, which was the level set in 2021-22, means more people are being dragged into the tax net every year.
This freeze is due to stay in place until 2027-28 under a policy that has been adopted by Labour. The new state pension is £11,502.40 while income from other sources such as dividends and private pensions will quickly take people over the personal allowance threshold.
Recent figures published by HM Revenue and Customs (HMRC) found that the number of Britons paying tax on their state pension rose from 7.85 million to 8.51 million.
Former pensions minister, Sir Steve Webb, partner at pension consultants LCP said: “It is rarely good news to receive a letter from HMRC and in this case 140,000 pensioners will be getting a tax demand in the next few weeks for the first time since they retired.
“The size of the bill will often be relatively small at first, but this could grow year-on-year if the current policy of freezing tax thresholds continues.
“The recipients of these letters are not well off, and some will have a living standard below the pensions industry’s assessment of the ‘minimum’ income needed for a basic quality of life.
“There is also a risk that scammers will catch on to the fact that these letters are being sent out and come up with fake letters trying to get money out of pensioners.”
HMRC said it will be writing to people who have taxable income but who are not in Self Assessment, or for whom we can’t automatically deduct the tax owed via a PAYE tax code.
It said: “The letter will include a detailed calculation of any tax due for income they received between April 2023 and April 2024.
“They’ll need to pay what they owe using Simple Assessment. For some, including around 140,000 pensioners who will receive a letter, this will be the first time they’ve received a Simple Assessment”.
It should be noted that people usually have until January 2025 to pay the bill. Also they can pay in instalments if they wish, as long as the total bill is paid by the deadline.
