More than half a million more people to pay tax on pension from today in 'stealth tax'

Another 650,000 people will start paying income tax on their pension from today.

And up to 1.6 million more pensioners will be taxed within the next four years, new analysis by the House of Commons Library has suggested.

The State Pension rises 8.5% to £11,502 today as a result of the triple lock promise which keeps payments in line with inflation, average earnings growth or 2.5% - whichever is highest.

It means pensioners who have income of more than £1,068 on top of the State Pension will fall over the tax threshold.

The number of people affected is particularly high this year because the Government has not raised the income tax threshold since 2021. The numbers will continue to rise as Chancellor Jeremy Hunt has vowed to keep the income tax freeze until the end of 2028 creating what is known as fiscal drag.

As well as the State Pension rising, wages have also increased during that time pushing more working people into higher tax bands, in what critics call a stealth tax.

Campaigners are urging the Government to raise the income tax threshold.

Sarah Olney, the Treasury spokeswoman for the Liberal Democrats, which commissioned the research, said older voters were "sick of being taken for granted".

She added: “These stark figures reveal the stealth tax bombshell facing pensioners under this Conservative Government. Older people who have worked hard and contributed all their lives are now being clobbered with years of unfair tax hikes."

About 60% of over 65s – or 8.5million people - pay income tax according to the Institute for Fiscal Studies (IFS), up from 50% in 2010.

It's feared many low-income pensioners could face fines and penalties for not declaring their tax liability in a self-assessment form for the modest income they are living on.

John O’Connell, chief executive of the TaxPayers’ Alliance, told the Telegraph: “Taxpayers young and old are being hammered by frozen thresholds. Ministers must use every opportunity available to them to give relief to households.”

A Treasury spokesman defended the decision to freeze tax thresholds, saying: “After providing hundreds of billions of pounds to protect lives and livelihoods throughout the pandemic and Putin’s energy shock, we had to take some difficult decisions to help pay it back.

“Now the economy is turning a corner, we have cut National Insurance by a third, meaning that, coupled with above-inflation increases to personal tax thresholds since 2010, we have saved the average earner over £1,500 compared to what they otherwise would have paid.”

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Helen Barnett

Helen is a journalist, editor and copywriter with 15 years' experience writing across print and digital publications. She previously edited the Daily Express website and has won awards as a reporter. Read more here.