A recent study indicates that if the current freeze on tax thresholds continues until 2030, approximately ten million pensioners could be required to pay income tax by the end of the decade. The standard personal allowance, which stands at £12,570 per tax year, has remained unchanged since 2021/22.
Although the freeze is scheduled to conclude in the 2028/29 tax year, there are speculations that Rachel Reeves might extend it for an additional two years. If this extension occurs, an additional half a million state pensioners would be subjected to income tax, as highlighted by new data from former pensions minister and LCP partner Steve Webb.
According to LCP, the number of pensioners paying income tax could escalate to ten million by the end of the decade if inflation or wage growth accelerates in the upcoming years. The state pension undergoes an annual increase through the triple lock system, with projections indicating a rise from £230.25 to £241.30 a week in April 2026, aligning with a 4.8% wage growth.
As a result of the freeze on tax thresholds, a significant portion of pensioners – around three quarters – are expected to be paying taxes, potentially surpassing 9.3 million individuals. Steve Webb from LCP expressed concerns, stating that further freezes could lead to over 10 million pensioners being taxed by the decade’s end. The majority of current pensioners could find themselves above the tax threshold due to the state pension alone, with many not needing to file tax returns as the tax will be collected through existing information held by HMRC.