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Income tax

Thousands of Pensioners Fall into 60% Tax Bracket Despite Not Considering Themselves Wealthy

Strategic Insights

— 1 min read

A recent freedom of information request by Interactive Investor has revealed that 77,000 pensioners found themselves paying 60 per cent income tax in the last year, a significant increase from the previous year. This has raised concerns that the frozen tax threshold of £100,000, introduced in 2010, is causing older workers to be pulled into the higher tax bracket. With the deep freeze on income tax bands set to endure until 2028/29, thousands more people above state pension age will be hit with punitive rates of tax on some of their income.

Key Takeaways:

  • 77,000 pensioners paid 60 per cent income tax in the last year, a significant increase from 34,000 three years ago and 68,000 in the 2023/24 financial year.
  • The tax threshold has been held at £100,000 since its introduction in April 2010, despite calls to modify it to match economic conditions.
  • For every £2 of income a person earns over £100,000, their tax-free personal allowance is reduced by £1.
  • Paying into a pension can reduce the likelihood of being subjected to inheritance tax, but requires careful tax planning and includes contributions to a private pension, like a SIPP.
  • Craig Rickman, pensions expert at Interactive Investor, warns that the tax-trap threshold has been frozen at the same level as inflation, meaning workers would now be able to earn £155,000 before being hit with 60% income tax if it had kept pace with inflation.

Statistics:

  • 77,000 pensioners paid 60 per cent income tax in the last year.
  • 34,000 pensioners paid 60 per cent income tax three years ago.
  • 68,000 people paid 60 per cent income tax in 2023/24.
  • £100,000: the frozen tax threshold since its introduction in 2010.
  • £155,000: the amount workers would be able to earn before being hit with 60% income tax if the threshold had kept pace with inflation.
  • 2028/29: the planned end date for the deep freeze on income tax bands.

Sources:

  • "Interactive Investor" (https://www.ii.co.uk/)
  • "City A.M." (https://www.cityam.com/income-tax-raid-tops-brits-list-of-budget-fears/)
  • "City A.M." (https://www.cityam.com/keir-starmer-refuses-to-rule-out-income-tax-raid-at-the-budget/)

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