Government Tax Changes Impacting Retirees

Over the next four years, more than 1.6 million retired people will have to pay income tax, thanks to a sneaky move by the government. According to a study of the Prime Minister and Chancellor Jeremy Hunt's tax plans, about 600,000 folks will cross the threshold where they must start paying tax when the state pension increases next Monday.

Additionally, because the government has frozen the amount of money you can earn before paying tax, called the personal allowance, around 1.2 million more pensioners will have to pay tax in the new tax year. By 2028, it's estimated that around 9.3 million people over 66 will be paying income tax.

The personal allowance, which usually goes up with inflation, has been stuck at £12,570 since 2021 and will stay there until 2028. With the new state pension increasing by £902.20 a year from April 8th, more pensioners are getting closer to the point where they have to start paying tax.

For those who receive the full new state pension, which is £11,502.40 a year for those who became pensioners after 2016, this means they can only earn an extra £1,067.60 a year before they have to start paying tax.

If the personal allowance had increased in line with inflation, it would have gone up to £15,220 next week and to £15,990 by 2028, according to experts. Since the Conservatives came into power, the number of pensioners paying income tax has nearly doubled, going from 4.9 million in 2010 to 8.5 million today.

This freeze on income tax thresholds will leave the average pensioner paying £1,000 more in tax by 2027/28, costing a total of £8 billion. And because of these changes, more pensioners might end up facing fines for not paying the tax they owe.

Sarah Olney, who speaks about money matters for the Liberal Democrats, says that older folks who have worked hard all their lives are now getting hit with unfair tax increases.