Thousands of pensioners are under unexpected tax demands after being trapped in a frozen trap Income Tax Threshold and three lock pensions.
HMRC issued approximately 132,000 “simple assessments” to pensioners in the 2023/24 tax year, up 74% from the previous year, dragging more taxpayers into taxable thresholds in a phenomenon known as “fiscal drag.”
The bands with personal allowances and higher taxes were frozen in March 2021 and extended for two years from 2022 to 2027/28.
Labor vowed to freeze the threshold if elected to power, under Prime Minister Rachel Reeves, he has been delivering on his promises – pensioners are in more financial pain when she deprived of winter fuel payments.
The Revenue Agency conducted a brief assessment of those with “relatively direct tax affairs”, including those with income generated by state and private pensions, income from savings and investments.
It calculates whether taxes have exceeded or insufficient based on data from banks and construction societies and DWP.
Simple assessments provide pensioners with headaches that they have to complete a self-assessment tax return – but for those who think they have earned more than their personal allowances, it can bring annoying surprises to people.
The freezing of the income tax threshold since 2022 means that more pensioners are reluctant to find themselves attracted by tax traps as their state pensions rise every year due to the triple lock.
Under Prime Minister Rachel Reeves, Labour has kept its promise of unwilling to marry income tax thresholds – meaning that more pensioners will be held accountable for taxes as state pensions increase
It guarantees that the state pension will rise as average income grows, inflation As shown in the Consumer Price Index, the highest is 2.5%.
The “new” and “old” state pensions for retirement after April 2016 rose to £230.25 per week or £176.45 per week – the former.
But as a result, the average income of pensioners increased, while the tax threshold did not – putting thousands of British people on tax territory, usually without notice before brown HMRC envelopes fell on their doors.
Many pensioners cannot obtain it on state pensions alone, but can also collect income from, for example, private pensions.
Simple assessment data released by HMRC through Free Information Requests show that on average 630,000 simple assessments are sent between 2017/18 and 2022/23 each year.
But 1,320,755 people were issued in 2023/24 – from 757,745 the previous year, indicating that thousands of pensioners have been pushed into the scope of income tax and ambushed by tax collectors.
Personal allowance – The amount of income you can get tax-free – has been frozen to £12,570 since 2021, and in the fall 2022 statement, Tories freezes the threshold to 2027-28.
Before the election, Labour said it would remain frozen until election.
But tax experts say the trap is being caught off guard — especially because they often think they aren’t bringing enough money to tax.
Steve Webb is a former pension secretary and now a partnership with the pension consultant LCP telegraph The “thousands” recipients of a simple assessment may be pensioners.
He added: “Many retirees with moderate income may wish that the days they had to deal with HMRC were over, but the long-term freezing of the tax threshold changed the situation.
“While most pensioners still don’t have to file tax returns, thousands will still get unpopular year-end tax demand from HMRC.”
The data for the simple assessment was obtained by financial consulting firm Quilter, which had previously warned that rising inflation could push more pensioners into tax traps by 2027.
“This is another sign in fiscal action. Millions of people are entering the tax system without their own fault.
The sharp rise in simple assessments reflects how freezing tax thresholds and higher state pensions create more tax liabilities for older people. Many of them may not even realize that they owe anything before the HMRC letter arrived.
“While simple assessments are designed to simplify tax collection, they can be caught off guard, especially those who have not completed their tax returns and believe their income is below the tax exemption threshold.
“The government’s freeze on allowances is quietly expanding the tax base. Unexpected tax bills can be frightening, especially if you are already struggling financially. ”
He added: “If you get one and don’t know what to do, the best action is to call HMRC to discuss your options. Don’t bury your head in the beach.”
Contact HMRC for comment.
