More than one million more pensioners will be dragged into paying income tax in the next four years, new analysis has shown.
The Government's stealth tax freeze means around 1.6 million pensioners face paying a tax they never had to pay before.
The personal allowance threshold has been frozen at £12,570 since April 2021 – this is the rate at which people start paying tax.
Currently, 8.5 million pensioners pay income tax but analysis by the House of Commons Library has found this will rise to 9.3 million as the basic rate tax threshold has not increased since 2021.
Had it not been frozen, the tax threshold should have risen to £15,999 by 2027/28, according to research commissioned by the Liberal Democrat Party.
An estimated 1.2 million pensioners will be dragged into paying income tax in 2024/25 and an additional 1.6 million pensioners will be paying income tax compared to if the personal allowance had been increased in line with inflation.
The personal allowance threshold has been frozen at £12,570 since April 2021
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Last night, the Liberal Democrats said voters would punish the Conservatives in the upcoming election after the rise in the number of people paying income tax.
Sarah Olney, the party’s Treasury spokeswoman, said: “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.
“Jeremy Hunt’s pensioner-punishing Budget will not be forgotten come the next election.
“The Conservative Party faces a reckoning from older voters sick of being taken for granted.”
The frozen income tax thresholds will leave the average taxpaying pensioner £1,000 worse off by 2027/28, which is a collective hit of £8billion, analysis from the Resolution Foundation has found.
The freeze means that every year, more and more older people are having to pay the levy as their income from the state pension and private pensions increases along with inflation – known as fiscal drag.
Without the freeze, the allowance would have risen to £15,220 in 2024/25 and up to £15,990 in 2027/28, analysis suggests.
Baroness Altmann, a former Tory pensions minister, told the Telegraph: “I do think it is worrying that so many more pensioners could be dragged into the tax net as the state pension may soon rise above the frozen threshold.
“Most of those tipped into tax will be poorer pensioners with little more than their state pension to live on.
“Most of them will be unaware of any liability and never have filled in a tax return in their life.
“They are then at risk of being hit with fines and penalties for not paying a tiny amount of tax they didn’t even know about.”
LATEST DEVELOPMENTS:
According to the Institute for Fiscal Studies (IFS), well over 60 per cent of over-65s now pay income tax, up from around 50 per cent in 2010.
In 2010, when the Conservatives came to power, around 4.9 million paid income tax.
There will be an extra 850,000 pensioners paying income tax in 2028 than this year, taking the total number to 9.35 million – the highest on record.
A Treasury spokesman said: “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.”
