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Tax hoarding: Chancellor Jeremy Hunt
Millions of pensioners will be forced to file an annual HMRC return for the first time in three years due to the Chancellor’s multi-million pound tax stealth raid, according to analysis by The Mail on Sunday.
Older people are likely to be dragged into the tax net even if they have no income other than a full state pension.
This is due to the so-called “fiscal resistance”. Jeremy Hunt has frozen personal thresholds and allowances for several years, bringing more people into the tax net and into higher rate bands.
Due to higher than expected inflation, this has resulted in a much larger loot than anticipated. The number of pensioners caught in the income tax net will already reach a record 8.5 million this year, up from 4.5 million in 2010.
In this week’s Budget the Chancellor is expected to keep the personal allowance (the point at which people start paying income tax) fixed at £12,570 until 2028. He is also committed to the “triple lock”, which guarantees that the state pension will rise each April in line with the highest rate of inflation from the previous September, earnings growth or a rate of 2.5 per cent.
The full pension will rise next month in line with 8.5 per cent inflation, to £11,501 a year. Since then, price increases have slowed to 4 percent and wage growth to 6 percent.
But even if income growth fell to 5 per cent a year, our analysis shows the state pension would exceed the personal allowance in 2027, triggering a 20 per cent tax charge on the difference. That would also mean that millions of unsuspecting pensioners would face the daunting prospect of filing an annual tax return – even for a small amount owed – or being fined if they miss the deadline.
Jason Hollands, of wealth manager Evelyn Partners, said that while the pension increases were welcome, if pensioners’ income was dragged into the tax system they could end up worse off in real terms. When Rishi Sunak introduced frost as chancellor in 2022, they were expected to raise £8bn. Now the figure is £43 billion by 2027-28.
The Office for Budget Responsibility says frozen thresholds are the biggest contributor to the increased tax burden on the economy. It is estimated that in 2028 this figure will reach the post-war high of 37.7 percent of production.
However, the sneak raid is vital if Hunt is to meet his goal of seeing debt fall as a percentage of economic output by then.
Pushpin Singh, of the Center for Economics and Business Research, said unfreezing subsidies in the Budget would hit public finances by more than £50bn, but this could be recouped through efficiency savings.