Pensioners born before this date dealt huge tax blow | Personal Finance | Finance

For Brits aged 66 or over, taxes have crept up over the past four years. The number of pensioners born in or before 1959 who are paying 40 or 45% has doubled since 2021 thanks to a freeze on tax thresholds, according to reports. This means more than a million pensioners are now paying higher rates of tax compared to four years ago.

Around 904,000 people at state pension age, which is presently 66, pay the 40p rate, while 124,000 lie in the 45p band, according to data obtained under a freedom of information request by LCP, a pensions consultancy. In 2021-22, the numbers were 455,000 and 39,000, The Times reports

The change is a clear example of the impact the freeze on income tax thresholds had.

This was introduced by Rishi Sunak when he was chancellor in 2021, the Labour government has extended it until April 2028.

When considering the impact it has had, this change has allowed more people to be dragged into paying higher taxes as their incomes rise and is commonly referred to as a “stealth tax”.

The number of pensioners paying the basic rate of income tax is also up, from 6.25 million in 2021-22 to 7.79 million this year.

Speaking to The Times, Sir Steve Webb, a partner at LCP and a former pensions minister, said: “The higher rate threshold has become a real cliff-edge over which growing numbers of pensioners are falling.

“There has been a significant increase in the number of pensioners paying income tax at all rates, but the rise has been greatest in the numbers paying income tax at the higher rates.”

The number of pensioners paying higher rates of tax is set to increase further as personal allowances and tax thresholds are set to be frozen until the start of the 2028-29 tax year.

But, the rate of increase is likely to be slower because the state pension age will rise from 66 in April 2026 to 67 by April 2028.

A Treasury spokesman said: “We are committed to helping our pensioners live their lives with dignity and respect, which is why we have frozen fuel duty and increased the state pension.

“Our commitment to the triple lock means millions will see their state pension rise by up to £1,900 this parliament.”

Stealth taxes begin to apply to an individual without clear warning and with this tax, many Brits may not have noticed they are paying more.