The UK’s frozen personal tax threshold is drawing growing scrutiny as new figures reveal that over 1.3 million pensioners and savers were issued tax bills by HMRC last year. The sharp rise in these assessments reflects the growing impact of “fiscal drag,” pulling more people into taxation despite only modest income increases.
First introduced in 2021 under the Conservative government, the freeze on income tax thresholds was recently extended to 2031 by Chancellor Rachel Reeves. As wages and pensions increase due to inflation and the triple lock mechanism, many who previously fell below the tax-free limit now face annual tax demands, often for the first time in retirement.
Surge in Tax Bills as Pension Income Edges Over Threshold
According to a freedom of information request reported in The Times, the number of people issued HMRC’s “simple assessments” more than doubled in two years, rising from 675,000 in 2021–22 to 1.32 million in 2023–24. These assessments are sent to individuals who owe tax but are not on PAYE, mainly affecting pensioners and savers.
The simple assessments are often issued for small sums: nearly 25 percent were for less than £100, and half were for under £300, according to HMRC. Yet the volume of these letters reflects a broader structural issue. As the state pension rises each year (reaching £12,548 in April 2026 under the triple lock) it is now approaching the personal tax allowance of £12,570, which has remained static since April 2021.
According to HMRC data cited by The Times, many pensioners whose sole income was previously tax-free are now liable for income tax purely because of inflation-linked pension increases. Former pensions minister Steve Webb, now with consultancy LCP, said the result has been a “soaring” number of unwelcome tax demands, affecting those who often have little means to manage complex tax paperwork.
Webb called for a broader solution, warning that although the government has pledged to protect some pensioners from 2027, the measure does not go far enough. “A much wider-ranging solution is needed,” he said, noting that the number of simple assessments could pass two million in the 2024–25 financial year.
Government Pledges Change, But Questions Remain
In response to growing concerns, Chancellor Rachel Reeves announced in her 2025 autumn budget that, from April 2027, those whose only income is the full new state pension will be exempt from income tax. However, the specifics of how this exemption will be implemented remain unclear.
According to the report, personal finance expert Martin Lewis highlighted the issue during a televised interview with Reeves, raising concerns about the administrative burden on elderly individuals, including those with cognitive difficulties. He noted that someone marginally below the full pension could be taxed for having a small private pension, while another with a full state pension alone would not.
The Treasury has said the matter is under review and that details will be provided in due course. HMRC, when approached for comment, directed queries to the Treasury, noting that such tax policy decisions fall under government jurisdiction. With millions more expected to face similar tax assessments over the coming years, the issue is likely to remain high on the agenda as the effects of the long-standing tax threshold freeze continue to unfold.
