Ten million retirees may face income tax obligations by the end of the decade if the current freeze on tax thresholds is prolonged until 2030, according to recent research findings. Typically, individuals can earn £12,570 per tax year before becoming liable for income tax, known as the personal allowance, which has remained stagnant since the 2021/22 tax year.
There are concerns that the freeze, slated to conclude in the 2028/29 tax year, could potentially be extended until 2030, as per reports associated with Rachel Reeves. Research by former pensions minister Steve Webb and LCP partner reveals that an additional 500,000 state pensioners could be affected if the freeze is extended, resulting in a total of at least 9.3 million pensioners paying tax, representing three-quarters of all pensioners, compared to the current 8.7 million.
Furthermore, projections by LCP suggest that the number of pensioners subject to income tax could escalate to ten million by the decade’s end if inflation or wage growth accelerates in the upcoming years. The state pension, governed by the triple lock mechanism, is anticipated to witness an increase from £230.25 a week to £241.30 a week in April 2026, aligned with a 4.8% wage growth, with precise details set to be disclosed in the Budget.
Considering the freeze’s impact, the new state pension is expected to surpass the tax threshold in the coming years. Steve Webb emphasized that the combination of stagnant tax thresholds and rising inflation has propelled a surge in pensioners paying tax, with the potential for half a million more pensioners to be affected if the freeze continues. Despite these changes, most affected pensioners are not required to file tax returns, as any tax owed is typically managed through their private pension arrangements or the ‘simple assessment’ process conducted by HMRC.
