HMRC to send tax demand to 140,000 pensioners in weeks for the first time since they retired

This will be the first time these pensioners have received a tax demand since they retired.

Recent figures published by HM Revenue and Customs (HMRC) found that the number of Britons paying tax on their state pension rose from 7.85 million to 8.51 million.

Many have cited Chancellor Jeremy Hunt's decision to freeze tax allowances until 2028 as the reason behind this due to the impact of "fiscal drag".

This is the term used to describe when tax thresholds remain at the same level at a time when household incomes are rising.

With personal allowances frozen until 2028, many pensioners have been pushed to pay taxes as their income from the state pension and their private pensions exceed the allowance threshold.

HMRC said: "Over the next 6 weeks, we’re writing to around 560,000 customers who have taxable income but who are not in Self Assessment, or for whom we can’t automatically deduct the tax owed via a PAYE tax code.

"The letter will include a detailed calculation of any tax due for income they received between April 2023 and April 2024.

"They’ll need to pay what they owe using Simple Assessment. For some, including around 140,000 pensioners who will receive a letter, this will be the first time they’ve received a Simple Assessment”.

It should be noted that people usually have until January 2025 to pay the bill.

Also they can pay in instalments if they wish, as long as the total bill is paid by the deadline.

Commenting on the announcement, Steve Webb, partner at pension consultants LCP said: “It is rarely good news to receive a letter from HMRC and in this case 140,000 pensioners will be getting a tax demand in the next few weeks for the first time since they retired.

"The size of the bill will often be relatively small at first, but this could grow year-on-year if the current policy of freezing tax thresholds continues. The recipients of these letters are not well off, and some will have a living standard below the pensions industry’s assessment of the ‘minimum’ income needed for a basic quality of life.

"There is also a risk that scammers will catch on to the fact that these letters are being sent out and come up with fake letters trying to get money out of pensioners.

"The new Government needs to take an urgent look at whether taxing so many people on such modest levels of income in retirement is really the right way to proceed."

HMRC can calculate someone's tax liability without them needing to fill out a full self-assessment tax return.

This is because they already have the information on someone’s taxable income from wages, state pensions or private pensions, and collects that tax through the PAYE system.

With the personal savings allowance to remain at £12,570, fiscal drag could bring more people into higher tax brackets.

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Currently, the full, new state pension comes to just over £11,500 a year which is below the personal savings allowance.

However, if the triple lock remains in place, payments are expected to exceed this tax-free threshold in the next few years.

Researchers warn that wage growth will raise the state pension past the personal savings allowance threshold by April 2026, meaning pensioners would pay tax of 20 percent on every £1 over the £12,570 threshold from the state pension payments.