Retired households have seen their annual tax bill increase by £347 as a result of increased incomes and frozen thresholds, new data shows.
Research by pension provider iSIPP revealed that, based on the most recent Government data, the average bill for direct taxes is £5,308 a year for retired households, marking a seven percent increase on the previous year’s £4,961 annually.
The increase in individual tax bills from income tax and council tax has boosted the collective tax taken from retired households by more than £6.2billion, highlighting the contribution of older people to the UK’s finances.
Hrishi Kulkarni, managing director at iSIPP, said: “Taxation levels are increasing across the board with the decision to not uprate income tax thresholds in line with inflation, meaning more people are paying tax and some are paying higher rates including retired households.
“The good news for retired households is that income from private pensions and investments are increasing and they are also in line for a major rise in the state pension from next April.”
However, Mr Kulkarni added: “It is important, however, that retired households budget for their tax bills and maximise tax-free savings where possible.”
According to iSIPP, a significant portion of the tax bill increase is attributed to the boost in pre-tax incomes among retired households. The most recent Government data indicates a rise from an average of £32,265 to £33,997.
The new fiscal year in April introduced a raft of frozen tax allowances and reductions, pushing millions more into tax brackets they might not have previously reached.
HMRC figures from June show 8.5 million people aged 65 or over will be liable for income tax this year – a 10 percent increase from 7.7million in 2022/23 and 25 percent more than 6.8million in 2020-21.
Meanwhile, the total number of taxpayers of all ages is estimated to have risen by 1.3 million annually to reach 35.9 million in 2023/24.
Commenting on the summer’s stats previously, Alice Guy, head of pensions and savings, interactive investor, said: “We’re living through worrying times when, despite rising costs, more pensioners than ever are expected to pay tax this year.
“The stark figures demonstrate the chilling effectiveness of freezing tax thresholds. The personal allowance has been frozen at around £12,500 since 2019 and is expected to remain at the same level until at least 2028.
“We often focus on how fiscal drag affects higher earners, but it actually costs lower earners more as they will see more and more of their income taxed at 20 percent.”
Ms Guy added: “Pensioners have limited options to increase their income and may wonder why they feel poorer each year. Yes, it’s partly due to the cost of living crisis, but it’s also because they are paying more tax as their pension rises with inflation. It feels like the taxman is squeezing the last dregs from the tube of toothpaste.
“So, if you’re feeling a little bit poorer this year, it’s partly due to increasing prices, but also in part because you’re probably paying a lot more tax than last year.”
