{"id":105585,"date":"2025-03-07T12:00:00","date_gmt":"2025-03-07T12:00:00","guid":{"rendered":"https:\/\/en.econostrum.info\/uk\/?p=105585"},"modified":"2025-03-07T09:32:40","modified_gmt":"2025-03-07T09:32:40","slug":"pensioners-caught-in-tax-trap","status":"publish","type":"post","link":"https:\/\/en.econostrum.info\/uk\/pensioners-caught-in-tax-trap\/","title":{"rendered":"Pensioners Caught in Tax Trap as State Pension Breaches Allowance"},"content":{"rendered":"\n<p>Millions of state pensioners in the UK may soon find themselves paying income tax on their pensions for the first time. According to <strong><a href=\"https:\/\/www.db.com\/uk\" target=\"_blank\" rel=\"noopener\">Deutsche Bank<\/a><\/strong> forecasts, state pension payments could increase by 5.5% in April 2026, pushing them above the current tax-free personal allowance and triggering unexpected tax liabilities.<\/p>\n\n\n\n<p>The government\u2019s freeze on tax thresholds means that as pension payments rise, more retirees are being drawn into taxation. Experts warn that this &#8220;stealth tax&#8221; could significantly impact pensioners, particularly those relying solely on state support.&nbsp;<\/p>\n\n\n\n<p>Critics argue that while the government maintains income tax rates have not increased, the effects of frozen thresholds mean more individuals will pay tax each year.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">State Pension Increase Set to Breach Tax-Free Threshold<\/h2>\n\n\n\n<p><a href=\"https:\/\/en.econostrum.info\/uk\/state-pension-boost-dwp-to-pay-up-to-920\/\" data-type=\"post\" data-id=\"104698\">State pension <\/a>payments are expected to rise to \u00a312,631 in April 2026, surpassing the \u00a312,570 tax-free personal allowance, according to Deutsche Bank. This would mean pensioners receiving only the state pension would have to <strong>start paying income tax<\/strong>\u2014an obligation many have never faced before.<\/p>\n\n\n\n<p>The increase follows the application of the triple lock mechanism, which ensures state pensions rise in line with either inflation, wage growth, or 2.5%, <strong>whichever is highest<\/strong>. While designed to protect pensioners\u2019 income, it has inadvertently placed many in the tax net due to the frozen personal allowance.<\/p>\n\n\n\n<p>According to <strong>Sarah Coles<\/strong>, head of personal finance at Hargreaves Lansdown, this policy has already led to a substantial increase in the number of taxpayers. \u201cIn 2024\/25, there are an estimated 37.4 million income taxpayers, up 4.4 million since tax thresholds were frozen in 2021\/22,\u201d she said.<\/p>\n\n\n\n<p>This trend is set to continue, meaning that pensioners who were previously untaxed will see a portion of their pension income deducted. Critics argue that this effectively amounts to a tax rise, even though tax rates themselves have not changed.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Critics Warn of Financial Strain on Pensioners<\/h2>\n\n\n\n<p>Campaigners and financial analysts have expressed concerns that this additional tax burden will hit pensioners at a time when many are already struggling with higher living costs.<\/p>\n\n\n\n<p><strong>Dennis Reed<\/strong>, director of Silver Voices, highlighted the impact on those reliant on fixed incomes. \u201cOlder people on fixed incomes are facing a cruel double whammy, squeezing their living standards to the point of <a href=\"https:\/\/en.econostrum.info\/uk\/child-poverty-in-uk-why-scotland-is-leading\/\" data-type=\"post\" data-id=\"103087\">poverty<\/a>. The research nails the lie that older people will be better off under Labour this year.\u201d he said.<\/p>\n\n\n\n<p>The political debate surrounding pensioner taxation has intensified, with some blaming the current government\u2019s policies and others pointing to Labour\u2019s approach to pensioner support.&nbsp;<\/p>\n\n\n\n<p>Tory MP Kevin Hollinrake accused Labour of failing to protect pensioners, stating: &#8220;First Labour snatched away the winter fuel allowance and is forcing councils to hike up council tax to pay for Labour&#8217;s new jobs tax despite Starmer promising &#8216;not a penny more&#8217; during the election&#8221;.<\/p>\n\n\n\n<p>Meanwhile, Sarah Coles argued that the ongoing<strong> tax threshold freeze<\/strong> is a discreet way for the government to increase tax revenues without explicitly raising tax rates. &#8220;Yet it feels like a crafty way to hike how much tax we pay \u2013 while still being able to say taxes haven\u2019t risen.&#8221; she said.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>For decades, the state pension has been a lifeline for retirees, but now a major financial shift could change that. As pension payments increase, frozen tax thresholds mean millions may soon face deductions for the first time. Critics warn this \u201cstealth tax\u201d could put pensioners under further financial pressure.<\/p>\n","protected":false},"author":10,"featured_media":105589,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[29],"tags":[],"class_list":["post-105585","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-taxation","generate-columns","tablet-grid-50","mobile-grid-100","grid-parent","grid-33","no-featured-image-padding"],"_links":{"self":[{"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/posts\/105585","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/comments?post=105585"}],"version-history":[{"count":3,"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/posts\/105585\/revisions"}],"predecessor-version":[{"id":105592,"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/posts\/105585\/revisions\/105592"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/media\/105589"}],"wp:attachment":[{"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/media?parent=105585"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/categories?post=105585"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/tags?post=105585"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}