Hundreds of thousands of pensioners hit with surprise HMRC tax bill | Personal Finance | Finance

Hundreds of thousands more pensioners will pay income tax on their retirement savings as a result of frozen tax bands and the state pension triple lock. HMRC identified 1.32 million pensioners as owing tax during the 2023/24 tax year, a 74% increase on the previous year, according to a freedom of information request from financial adviser Quilter.

Jon Greer, head of retirement policy at the firm, said: “This is yet another sign of fiscal drag in action. Millions are sleepwalking into the tax system through no fault of their own.”

So many more pensioners are paying tax reportedly because of a freeze in the personal tax allowance, which has been £12,570 since March 2021, plus the effect of the triple lock.

It is expected to remain at that level until 2028 as Chancellor Rachel Reeves extended the decision made by her predecessors, Rishi Sunak and Jeremy Hunt, despite campaigners pointing out the effect of soaring inflation on retirement incomes.

Quilter said demands took the form of ‘simple assessments’. These are carried out by HMRC and calculate whether tax has been over- or underpaid based on data from banks and building societies, as well as the DWP.

The triple lock, promises to raise the state pension each year either in line with earnings growth, inflation on or 2.5%. This year it rose to £230.25 or £176.45 a week for the ‘new’ and ‘old’ state pensions.

Although the full state pension does not breach the personal allowance, many pensioners have smaller personal or company pensions, which push their income above £12,570 annual limit. Any amount over that is taxed at 22%.

One pensioner, who didn’t want to be named, told the Daily Express she was on a full state pension with two smaller pensions.

“One paying £30 a month, I only see £19 of that, another pays £50, but I only see £36 as the rest goes in tax. “It doesn’t seem fair really. I’m a widow and my husband died before he was able to retire.”

Greer said: “The sharp rise in simple assessments reflects how frozen tax thresholds and higher state pensions are creating more tax liabilities for older people. Many of them may not even realise they owe anything until HMRC’s letter arrives.

“If you get one and don’t know what to do, the best course of action is to call HMRC to discuss your options. Do not bury your head in the sand.”

HMRC have been contacted for comment.

Are you a pensioner who has had an unexpected tax bill – contact us at samantha.downes@reachplc.com