Pensioner, 84, left owing HMRC a £300 tax bill due to ‘stealth tax’ amid ‘nice’ state pension increase

The retiree contacted GB News after he was left owing HMRC more than £300 earlier this year.

Jim gets the state pension, which has been enhanced because he paid SERPs, plus a “small” private pension per month, from which tax is taken at source.

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WATCH NOW: Greg Smith MP says it's 'absurd' pensioners are affected by fiscal drag

The pensioner pays a “small” amount of extra tax each year.

This year though, Jim had to pay more than £300 in tax, which he said was “mainly due to the nice increase on the state pension”.

The state pension increased by 10.1 per cent in line with inflation this year, under the triple lock policy.

However, with the personal allowance – the amount of taxable income allowed before the 20 per cent income tax rate is triggered – frozen at £12,570 until 2028, more pensioners are at risk of paying income tax. This is known as fiscal drag.

With the state pension looking set to rise by 8.5 per cent in April 2024, more than half a million pensioners a forecast to be dragged into the income tax net.

If the 8.5 per cent increase goes ahead, the full new state pension would rise to £11,502.40 a year, while the full basic state pension would increase to £8,814 per year.

Speaking to GB News, Jim said: “What's the point of receiving an increase only to have to give it back?”

Jim urged the Government to have a “good look” at the situation adding: “Otherwise, they might as well not bother to give pensioners an increase.”

Steve Webb, partner at LCP, said: “Alongside a continued freeze of the tax-free personal allowance, [an 8.5 per cent increase] is likely to drag well over half a million more pensioners into the income tax net.

“Once again, ‘stealth’ taxation proves a convenient revenue raiser for the Chancellor.”

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Conservative MP Greg Smith branded the impact of fiscal drag on pensioners an “absurdity” during an exclusive interview with GB News. Watch the video here.

Mr Smith said: “I think it's absurd that pensioners who've done the right thing, who put into a private pension, who saved hard throughout their working lives, suddenly find themselves being punished for it as they draw down their pension.

“This is the real-life effect of inflation coupled with fiscal drag.

“If you don't keep up with inflation with the thresholds as a very minimum, people who were not expecting to pay tax, and arguably shouldn't be paying tax, are dragged into it."

An HMT spokesperson said: “Pensioners whose sole income is the new state pension and who have not deferred or receive protected payments do not pay any income tax, and this year we provided the biggest ever cash increase to pension payments, a 10.1 per cent rise.

“Our tax burden remains lower than any major European economy – and by raising personal thresholds over the past decade we have taken three million people out of paying tax altogether. The best tax cut we can provide right now is to halve inflation, which we’re on track to do this year as long as we stick to our plan.”