Rachel Reeves announced a crucial change in her Budget that puts pensioners on a cliff edge.
More pensioners are set to be dragged into paying more (Image: Getty)
UK pensioners have been issued with a £22 income tax alert. An increase in the state pension in line with the triple lock means Brits will find themselves a slither away from having to fork out cash for the Treasury. Yesterday, Rachel Reeves announced an extension to income tax thresholds in her Budget yesterday, meaning more pensioners face having to pay the levy due to so-called “fiscal drag” as more individuals enter higher brackets due to inflation.
John Chew, technical specialist in tax and estate planning at Canada Life, said: “The triple lock will trigger a 4.8% rise in the State Pension from April 2026 to £12,548, meaning pensioners will be just £22 away from the income tax cliff edge. With income tax thresholds now extended until 2031, this stealth tax will continue to bite deeper into pensioners’ incomes. From April 2027, anyone receiving the full State Pension will, for the first time, start paying income tax on it.”
Rachel Reeves presented her Budget yesterday (Image: Getty)
He added: “For those who will be relying on other assets to sustain their finances in retirement – such as private pensions, annuities, or dividends – the income tax bill will rise even further.
“In just four months, pensioners relying on dividend income will also face a 2% increase in dividend tax, further eroding their retirement income.”
It has been estimate that am additional 500,000 state pensioners face having to pay income tax after the Chancellor announced a further threshold freeze.
The number could rise from around 8.7million to around 9.3million, research from Steve Webb, a parter at pensions consultants LCP and former Liberal Democrat pensions minister, showed, according to Yahoo.
The freeze will result in 780,000 more basic-rate, 920,000 more higher-rate, and 4,000 more additional-rate income tax payers in 2029/30 overall.
People are dragged into paying 20% income tax if their earnings rise above £12,570, with the 40% rate from £50,271 and the 45% band from £125,140.
Ms Reeves insisted the threshold freeze did not breach Labour’s manifesto commitment not to increase income tax or national insurance.
And she said the burden on working people – the group Labour had promised to protect – was being kept to a minimum.
She told Sky News: “I do recognise that that will mean that working people pay a bit more. But I’ve kept that contribution to an absolute minimum by closing… a number of tax loopholes and also bearing down on Government spending, on waste and inefficiency.”
