Pensioners are warned to be wary of ‘tax net’
OVER half a million more retired people could be dragged into the “tax net” next year, according to a former Liberal Democrat pensions minister.
Sir Steve Webb, who is now a partner at pensions specialists LCP (Lane Clark & Peacock), said frozen income tax thresholds, combined with pension increases next year, may potentially pull at least another half a million pensioners into the income tax net.
LCP looked at HM Revenue and Customs (HMRC) figures to make the estimates. It said that in April 2022 the state pension rose by only 3.1%, yet as income tax thresholds were frozen the number of over-65s paying tax rose by 390,000 between the financial years 2021/22 and 2022/23.
With a much larger pension increase expected in April 2023, a bigger jump in the number of over65s paying tax is expected. LCP calculations suggest this is likely to see at least half a million more being added to the total.
Next year, the state pension is expected to rise in line with CPI (Consumer Prices Index) inflation in the year to September 2023. The August inflation figure was 9.9%.
LCP said that many occupational pensions will be increased because of inflation, although the exact rules may vary. Sir Steve said: “Freezing tax thresholds is a stealthy way of raising tax at the best of times, but at a time of soaring inflation, freezing thresholds has a profound effect.
“During this Parliament, we have already seen over a million extra pensioners dragged into the tax net, and next April’s increase is likely to add at least half a million more.
“If the Chancellor is looking for ways to cut taxes and ease cost of living pressures on those on modest incomes, he could do worse than review the long-term freeze of income tax allowances.”
A Treasury spokesperson said: “Over the last decade we have increased the personal allowance people have before they pay any income tax from £6,475 in 2010 to £12,570 today.
“This has lifted millions of the poorest out of paying any income tax at all, and meant a real-terms tax cut of £750 for 27 million people.
“The vast majority of taxpayers will still pay the basic rate and the UK still has the highest personal allowance in the G20.”
Meanwhile, around one in five (21%) UK adults are estimated to be behind on at least one household bill, up from about one in seven (15%) in March, according to a charity.
Among those UK adults receiving means-tested benefits, 45% said they are behind with at least one bill.
The Money Advice Trust survey of 2,000 people in August also found two in five (41%) people generally said they had already cut down on all non-essential spending. This was up by seven percentage points compared with the charity’s previous research in March.
Nearly two in five (38%) people have stopped or reduced their car usage due to fuel costs and 14% have sold personal or household items to cover bills, the August survey found.
The charity, which runs National Debtline and Business Debtline, said that while the Government’s new energy price guarantee will remove the risk of energy bills climbing even further, the sustained impact of high prices has already taken a heavy toll on millions of households.
One in five (20%) people said they had seen their energy bill rise by £100 or more a month since April, according to the charity’s most recent findings.
Joanna Elson, chief executive of the Money Advice Trust, said: “The Government’s capping of energy bills provides relief from the fear of future increases, but for millions the damage has already been done.”