Tax warning for 340,000 state pensioners as HMRC bill looms | Personal Finance | Finance

Hundreds of thousands of pensioners will be dragged into paying income tax next year as the state pension increases.

Some 340,000 pensioners will cross the personal allowance threshold of £12,570 next year and start paying tax on their income, according to figures from former pensions minister Steve Webb.

The earnings figure that is used in the triple lock calculation has come out, suggesting payments could go up four percent, boosting the full new state pension from £221.20 a week to £230.05 a week, or £11,962.60.

This means all those with £1,600 or more in other income from savings or other pensions will be paying tax.

Sir Steve Webb explained the figures for i, explaining: “From next year, roughly three in four UK pensioners will have to pay income tax, and just over a third of a million will be dragged into the tax net for the first time since they retired.”

DWP figures how 72 percent of pensioners already pay income tax, with the basic rate at 20 percent for income up to £50,270.

Some analysts have suggested the state pension could increase by a larger amount than the four percent estimate, lifting even more pensioners into paying tax.

Victoria Harris, co-founder of The Curve Platform, said pensioners could get as much as double this figure, commenting: “The potential revision of the earnings figure for the triple lock is a hot topic.

“While it’s too early to pin down an exact number, we could be looking at an increase of around 7 to 8 percent based on current projections. This would be a significant boost for pensioners.”

This would increase the full new state pension to £238.90 a week, an increase of £920.40 a year to £12,422.80, just £150 away from crossing the tax threshold.

Ms Harris also said that when trying to predict how much the state pension will increase next April, inflation is another key factor.

She explained: “We must consider the broader economic implications. Inflation is the wild card here. If it continues to rise in the coming months, we might see even higher pension increases.

“This could be a double-edged sword – great for pensioners in the short term, but potentially challenging for the economy as a whole.”

Another expert warning the state pension could go up by more than the predicted amount is Yiannis Zourmpanos, financial consultant and senior contributor at Bountii.

He explained: “The Office for National Statistics (ONS) often revises its earnings data, which means the state pension increase you’re expecting might not be the one you’ll get.

“The ONS has been known to provide updated figures that more accurately reflect the actual earnings growth over a given period.

“This means that by the time the final calculations are made, we could see a different percentage being used for the state pension uprating.”