Rachel Reeves tax war on poorest pensioners – another 425,000 pay up | Personal Finance | Finance
Fresh figures from HMRC show that 8.7million over-65s will be paying income tax in 2025/26, up 420,000 in just one year. That’s a total increase of 29% since the Tories originally froze income tax thresholds in 2021, after the disastrous Liz Truss episode. Reeves has shown no sign of unpicking that decision.
In last October’s Budget she confirmed the freeze will last until 2028, and there’s growing speculation she may push it out even further.This stealth tax trick – known as fiscal drag – is hammering pensioners. Their incomes are rising, mostly thanks to the triple lock, yet tax thresholds stay fixed.
Thanks to the threshold freeze, more than 30 million workers will pay more tax every year. That includes a growing army of low income pensioners who are only just scraping by.
Ten years ago, just under seven million pensioners were caught by the taxman. By next year, it’ll be close to nine million. It’s a creeping tax grab on people who’ve worked and saved all their lives, and in many cases are still struggling to make ends meet.
This fiscal trap is set to ratchet up every year – and now there’s a real spanner in the works.
The full new state pension currently pays £11,973 a year. That’s just £597 below the frozen personal allowance of £12,570.
If the state pension rises by more than 5% next year under the triple lock, as wage growth suggests it might, the state pension alone will become taxable.
That’s a ludicrous outcome. It will see the Department for Work and Pensions handing out pension income with one hand while HMRC claws it back with the other.
Another huge worry is that it also risks pushing the poorest pensioners into the tax system without them realising it.
Most state pension is paid gross, with no tax deducted at source.
Add just a few hundred pounds from a private pension, savings income or part-time work, and retirees will tip over the threshold.
Many won’t even know until HMRC sends them a tax bill. Others may find themselves issued with a “simple assessment” demand without warning. Followed with penalties if they miss the payment deadline.
That’s already happening on a massive scale. The number of pensioners facing simple assessments has already soared, rising 74% in one year to more than 1.3million.
And that’s before today’s updated figures.
Reeves’s refusal to raise the tax thresholds has left pensioners in the firing line. Many are far from wealthy – they’re being taxed on modest incomes while battling rising living costs and reduced state support.
The Chancellor’s decision to axe the Winter Fuel Payment for wealthier pensioners was one blow. So is the assault on disability benefits.
Letting the personal allowance freeze bite deeper is an ever bigger one. For those on the cusp of the personal allowance, it’s a perfect storm.
The idea that the state pension will soon be taxed automatically is a sign of how skewed the system has become.
But Reeves appears paralysed. Her silence on the subject is deafening. It suggests she doesn’t have an answer.
In the meantime, pensioners need to stay alert. Many will drift into the tax system without even realising it.
Those unfamiliar with HMRC’s rules and processes, especially the very elderly, will struggle to keep up. They risk unexpected bills, penalties and sleepless nights.
It’s shaping up to be another avoidable mess, courtesy of Rachel Reeves. And vulnerable older Britons will bear the brunt.
