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More than 1.6 million pensioners will be forced to pay income tax over the next four years as a result of a stealth government tax raid.
An official analysis of Prime Minister and Chancellor Jeremy Hunt’s tax plans has found that up to 600,000 people will be pushed over their personal allowance limit – the point at which you start paying tax – when the state pension rises next Monday.
About 1.2 million extra pensioners will have to pay income in the new tax year as a result of the government’s freeze on tax exemptions, according to House of Commons Library research commissioned by the Liberal Democrats. As many as 9.3 million people over the age of 66 will pay the tax in 2028, it emerged.
British Chancellor of the Exchequer Jeremy Hunt (pictured) leaves Downing Street on March 19
The personal allowance typically rises with inflation, but has been frozen at £12,570 since 2021 and will remain at that level until 2028.
The new state pension will rise by £902.20 a year from April 8, under the government’s ‘triple lock’ pledge. This guarantees that the state pension will increase at the highest rate of inflation, wage growth or 2.5 percent.
The full new state pension – paid to those who reached retirement age after 2016 – will be £11,502.40 per year.
But this pushes hundreds of thousands of pensioners closer to the upper limit of their personal allowance.
This ‘stealth’ tax trap means they can only receive £1,067.60 per year in additional income before having to pay income tax.
The personal allowance would have risen to £15,220 from next week if it had not been capped and instead increased in line with inflation, and to £15,990 by 2028, according to the Office for Budget Responsibility.
The number of pensioners paying income tax has almost doubled since the Tories came to power, from 4.9 million in 2010 to 8.5 million now, according to research by think tank the Institute for Fiscal Studies.
The stealthy freeze on income tax thresholds will leave the average taxpaying pensioner £1,000 worse off by 2027/2028, costing a total of £8 billion, analysis by think tank Resolution Foundation has found.
Experts warn that more and more retirees are at risk of fines for not paying the taxes they knew were due.
Sarah Olney, MP and spokeswoman for the Liberal Democrat Treasury, said: ‘Older people who have worked hard and contributed all their lives are now being inundated with years of unfair tax increases.’