State pension warning as millions hit with 'stealth tax' deduction

Britain's stealth taxes are taking £241billion from working people including the number of additional rate taxpayers which has jumped to 860,000 – a 50 per cent increase on the year.

The number of Britons paying the higher rate of 40 per cent and "additional" rate of 45 per cent is up from five million two years ago when thresholds were frozen.

It comes as a petition is launched to demand that the tax changes are put to a halt.

The petition, created by Ray Crawford, has already received more than 20,000 signatures.

Crawford said: "I would like the Government to introduce a Bill to remove income tax on the State Pension. Most UK pensioners have worked for decades and most have paid their taxes to the Government of the day.

"Why in our latter years do we have to pay these taxes? We don't pay National Insurance unless we continue to work.

"We are penalised by the Government and HMRC by paying income tax on our State Pension because we have either workplace or private pension schemes to support us in later life.

"I would ask the Government to scrap the amount we pay."

The "stealth tax" does not come directly out of the State Pension but is instead deducted from their other pensions.

However, more Britons are more likely to be taxed more in future because, since 2012, it became legal for all employers to provide a workplace pension scheme.

But when this is added to their state pensions, it will push taxable income levels up.

The Government has issued a response to the petition, HM Treasury said: "The personal allowance is high enough that pensioners whose sole income is the new or basic State Pension do not pay income tax.

"The State Pension is designed to replace income and so is taxable. The Government is committed to ensuring that older people are able to live with the dignity and respect they deserve.

"Income earned through employment is taxable. In general, benefits that are designed to replace income are taxable and the same applies to income from the State Pension.

"Income tax is due on an individual's total income above the personal allowance, currently £12,570. Total income could include: the State Pension (the basic State Pension, the new State Pension, and the Additional State Pension); other taxable benefits; a private pension (workplace or personal); any other income, such as money from investments, property, or savings.

"It is important to note that the personal allowance is currently set at a level high enough to ensure that those pensioners whose sole income is the new State Pension or basic State Pension do not pay any income tax. The Government has nearly doubled the personal allowance since 2010 meaning around 30 per cent of individuals do not pay any tax."