State pensioner fury as millions more to pay income tax in retirement

The state pension may have survived for another year but there was a sting in the tail as Chancellor opened up a new line of attack. Pensioners will lose hundreds of pounds a year starting now.

In the autumn statement, Hunt froze the personal allowance, the point at which people start paying income tax, for another two years.

When Chancellor, Rishi Sunak had previously frozen it at £12,570 a year until April 2026, in a move that will drag more workers into the income tax net as wages rise every year.

Now Hunt has extended that until 2028.

This will also hit pensioners whose total income exceeds the personal allowance, once workplace and personal pensions are added, plus any earnings they may have.

The poorest pensioners may escape for now, as both the old and the new state pension currently pay nowhere near £12,570 a year. However, as I recently warned, that may soon change. By 2028, the maximum new state pension could actually exceed the personal allowance.

That would put pensioners in a ridiculous situation where they receive their state pension then hand a chunk of it straight back to HM Revenue & Customs.

Yet there is a more immediate risk, and readers are alert to it.

More will start paying hundreds of pounds in extra income tax from this year, as a result of Sunak and Hunt’s freeze.  

READ MORE: State pension to hit £10,600 but older pensioners get £2,500 less

Sman said freezing the personal allowance to 2028 “is a ticking timebomb for those trying to manage their essential budgets”.

He argued that the personal allowance should also have increased by 10.1 percent in line with inflation, lifting it to £13,839.57p.

Failing to do this means many will pay 20 percent basic rate income tax on an extra £1,269.57 in the 2023/24 tax year. “That’s an additional £253.91 in additional taxes paid back to the Government out of the recent increase.”

That is far from the end of it, Sman added, with inflation expected to stay high. “The loss of your personal allowance is a hell of a lot worse as each passing year, due to the compounding effect.”

If inflation sticks at around 10 percent next year, the personal allowance should have hit £15,223.53p in the 2024/25 tax year.

Instead, it will remain frozen at £12,570. That means an incredible £2,653.53 will be subject to 20 percent tax, costing pensioners and workers an extra £530.71 that year.

Every year this continues, and millions will pay thousands of pounds in total extra tax. It will hit both pensioners and workers below the retirement age. “This could be one of the most costly and disgraceful tax increases which does cause severe hardship for those on low incomes,” Sman warned.

I’d like to thank Sman for his work in highlighting the danger facing Britons as Hunt’s tax-freeze does its dirty work of squeezing them by stealth.

Hunt and Sunak hoped we wouldn’t notice. They didn’t reckon on vigilant readers.