One million pensioners hit by higher HMRC tax charges

According to figures from HM Revenue and Customs (HMRC), approximately one million pensioners are paying income tax at rates of 40% or above. The data, obtained through a freedom of information (FOI) request by former minister Sir Steve Webb, reveals that the total number of people who have reached State Pension age and are paying any income tax has risen by around two million in four years, from 6.7 million in 2021-22 to 8.8 million in 2025-26.

Over the same period, the number of people at State Pension age or older who are paying the tax at 40% or above has doubled – from around 494,000 in 2021-22 to around 1,028,000 this year. This total includes those paying income tax at a higher or an additional rate.

Sir Steve, now a partner at pension consultants LCP (Lane Clark and Peacock), attributed the rise in tax-paying pensioners to the freeze on income tax thresholds, significant state pension rises and other inflation-linked pensions increases. He also pointed out that being a higher rate taxpayer can mean more tax to be paid on other forms of income.

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For instance, basic rate taxpayers can receive up to £1,000 of interest on savings and not have to pay tax on it, under the annual personal savings allowance, while higher rate taxpayers have a £500 allowance, and for additional rate taxpayers the personal savings allowance is zero.

Sir Steve warned that moving up an income tax bracket could also impact the amount of capital gains tax some need to pay. He predicted that the number of pensioners paying higher tax rates will continue to rise as personal allowances and tax thresholds remain frozen.

However, he noted that the rate of increase is likely to slow down due to the gradual rise in State Pension age from 66 to 67 between 2026 and 2028. Sir Steve said: "There has been a significant increase in the number of pensioners paying income tax at all rates, but the rise has been greatest in the numbers paying income tax at the higher rates.

"This has more than doubled from under half a million four years ago to over a million now. Not only does this mean more tax on things like income from state and company pensions, it also means these pensioners are paying more tax on their savings, as their personal savings allowance is cut, and a higher rate of capital gains tax – a 'triple whammy'.

"The higher rate threshold has become a real cliff-edge over which growing numbers of pensioners are falling."

A Treasury spokesperson said: "We are committed to help our pensioners live their lives with dignity and respect, which is why we have frozen fuel duty and increased the state pension to leave pensioner couples up to £88 better off a month. Our commitment to the triple lock means millions will see their pension rise by up to £1,900 this Parliament."