A record 10.2 million people aged over 65 are expected to pay income tax in the UK in 2026/27, as frozen tax thresholds bring more pensioners into the tax system.
Number of Older Taxpayers Continues to Rise
New HM Revenue & Customs (HMRC) data shows that 40.8 million people will pay income tax in 2026/27, around one million more than the previous year. Among them, 10.2 million people over 65 will be taxpayers, an increase of 700,000 compared with the year before.
Around 9.5 million people of state pension age will pay income tax, meaning roughly seven in ten pensioners are now within the tax system. The number of over-65s paying income tax has risen by almost 3 million since 2022, when the previous government introduced a freeze on tax thresholds.
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Frozen Thresholds Increase Tax Pressure
The personal allowance, which determines when people start paying income tax, has remained at £12,570 since it was frozen. Higher-rate and additional-rate thresholds have also stayed unchanged.
The freeze has created what economists call fiscal drag. This happens when wages and other incomes rise over time while tax thresholds remain fixed, pushing more people into paying tax or into higher tax bands.
Chancellor Rachel Reeves extended the threshold freeze at the previous Budget, moving the planned end date from 2028 to 2031. The Office for Budget Responsibility estimates the policy could raise around £8 billion for the Treasury in 2029/30.
Pensioners With Private Income Are Most Affected
People receiving only the full state pension are not expected to pay income tax under current rules. The Treasury said pensioners whose only income is the full new or basic state pension will remain below the tax threshold.
The situation is different for those with additional income, such as private pensions or savings income. According to Office for National Statistics data, someone retiring with an average pension pot of £68,500 could have yearly income of around £15,300.
Under the current threshold, that would leave about £2,730 subject to the basic 20% income tax rate, resulting in around £546 a year in tax. If the personal allowance had risen with inflation, it would have reached around £15,771, meaning no tax would have been due at that income level.
Government Defends Current Pension Tax Rules
The government said the triple lock pension policy will continue, with around 12 million pensioners expected to see their income rise by up to £470 this year. A Treasury spokesperson said people receiving only the full state pension would not pay income tax during the current Parliament.
Economists have highlighted that freezing thresholds can raise revenue, but some have questioned whether relying on inflation-driven increases in tax payments is the right approach.
The growing number of older taxpayers reflects wider changes in the UK tax system, where frozen thresholds are gradually bringing more households into income tax as incomes rise.
