Three year allowance freeze set to make 10 million pensioners taxpayers | Steve Webb, LCP

Steve Webb, partner at LCP, warns that the extended freeze on personal tax allowances will bring record numbers of pensioners into paying income tax, with around 10 million expected to be taxpayers by 2030/31.

Reacting to the Budget, Steve Webb said:

• On personal allowances

“A longer than expected freeze in the tax-free personal allowance is likely to result in even more pensioners being brought into the tax net than expected.  At present, around 8.7m pensioners pay income tax.  Even though pension age will rise from 66 to 67 over the next two years, the number of pensioners paying income tax will rise to at least 9.3m in 2029/30.  But an extra year of freeze makes it highly likely that 10m pensioners – more than three quarters of all pensioners – will be taxpayers in 2030/31.”

Steve Webb, partner at LCP said:

“The extremely long freeze in tax thresholds, coupled with substantial increases in the rate of the state pension, means that the number of pensioners paying income tax has surged. It stood at 6.5m pensioner taxpayers in 2020/21, around 8.7m now, and a likely 10m in 2030/31 – an increase of more than half.  This is a fundamental shift in the way the tax system treats retirees.  Having to deal with HMRC is going to be the norm for pensioners in future”