A record 10 million over-65s will pay income tax this year, new HM Revenue & Customs (HMRC) data has revealed, as the government’s continued freeze on tax thresholds hits more people.
There will be 40.8 million people paying tax in 2026/27 according to the data release, a one million increase from the year before.
That figure includes 10.2 million will be over-65s, up by 700,000 from the year before. Of these, 9.5 million are of state pension age – currently 66 and rising to 67 – meaning seven out of ten pensioners are now taxpayers.
This number has risen by nearly 3 million since 2022, when the previous Conservative government introduced a freeze on tax thresholds, averaging 538,000 more every year.
By comparison, the number of over-65s paying income tax rose by 2.5 million between the years 2000 and 2019.
Rachel Reeves announced an extension to the freeze on income tax thresholds at last years’ Budget, moving its end date from 2028 to 2031. This prompted debate around whether the government had truly stuck to its pledge not to increase personal taxes during this parliament, with more people forced to pay tax by “stealth” under the measure.
The tax-free personal allowance has remained at £12,570 since it was frozen, with both the higher and additional rate thresholds also remaining fixed.
This has created what economists have termed a “fiscal drag”, where more people are pulled into paying tax, or into higher brackets, as average earnings increase but thresholds stay the same. The measure is expected to raise £8bn for the treasury in 2029/30, according to OBR analysis.
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Isaac Delestre, senior research economist at the Institute for Fiscal Studies, said: “The substantial reductions in the real value of income tax thresholds seen since 2021 entail more people on low incomes – including pensioners with small amounts of private pension income, minimum wage workers and workers receiving universal credit – becoming subject to income tax and a steeply rising fraction of workers becoming subject to higher rates of income tax.
“Reducing the real value of tax thresholds is not an inherently unreasonable way to raise revenue. However, freezing the cash value of thresholds as governments have done in recent years is a poor way of achieving that aim, leaving policy to be determined by the vagaries of inflation rather than by the judgement of policymakers.”
Who is affected?
The personal allowance threshold means that only those earning over £12,570 pay income tax, and only on the portion of their income that is above this amount. This is initially at 20 per cent, rising to 40 per cent on everything over £50,271 and 45 per cent over £125,140.
Anyone claiming a state pension and holding an average pension pot of £68,500 at retirement – according to data from the Office for National Statistics (ONS) – has a yearly income of around £15,300.
Under the current threshold, this means that 20 per cent of £2,730 would need to be paid in income tax, equating to £546 a year.
Had the threshold risen with inflation, it would sit at £15,771 – meaning no tax would be due at all.
The current personal allowance threshold has also brought the amount just over £20 higher than the full state pension amount, which is currently £12,547.60 and will rise in line with the triple lock commitment next year.
Addressing fears that the state pension could begin to be taxed from next year, Ms Reeves said in November that people receiving only the state pension will not have to pay tax.
An HM Treasury spokesperson said: “Anyone whose only income is the full new or basic State Pension without any increments will not pay income tax and we are committed to that over this Parliament.
“By keeping the Triple Lock, 12 million pensioners will see their income rise by up to £470 this year, and they continue to benefit from the highest Personal Allowance in the G7.”
