The number of pensioner taxpayers is set to surge by almost 30%, new figures have revealed.
Data from HM Revenue and Customs show that 8.7 million people over State Pension age are expected to pay income tax in 2025/26.
It is an increase of around 420,000 compared to the previous year, and up 29% from when income tax thresholds were first frozen in 2021/22.
Industry experts attributed the higher numbers to a combination of frozen tax thresholds and rising retirement incomes, including the triple lock guarantee which has seen pensions steadily climb in recent years.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “The pension tax paying population is surging. On the one hand, this can be celebrated as a sign of rising incomes among this population, but it’s also fair to say that frozen tax thresholds have also played a huge part in dragging more pensioners into taxpaying territory. With the freeze set to stay in place until 2028, we expect to see these numbers continue to swell.”
David Brooks, head of policy at Broadstone, said: “We would expect a growing number of pensioners to be liable for income tax as the country’s demographic changes due to our ageing population. Fiscal drag, however, is also bringing hundreds of thousands more pensioners into paying income tax every year as the frozen Personal Allowance thresholds combines with the triple lock-protected State Pension.
“While perhaps personally frustrating for many pensioners, it reflects the nature of inflation linked occupational pensions and a Triple-locked State Pension that continues to rise. The Government will be called on again to protect pensioners from this impact but with seemingly few ways to control the rise in pensioner incomes, taxation is the only tool left.”
The figures from HMRC also showed that the Treasury is set to rake in an extra £20 billion in income tax this year, with the total income tax haul set to rise to £323 billion.
In contrast, in the first year of the income tax threshold freeze, the Government collected £245 billion in tax.
AJ Bell said the “staggering” £78 billion climb in the nation’s annual income tax bill illustrates the huge impact the tax freeze has had on people’s finances.
Laura Suter, director of personal finance at AJ Bell, said: “The deep freeze on income tax thresholds means the Treasury’s tax take continues to spiral. Everyone is caught by frozen tax thresholds, including pensioners and anyone with earnings above the £12,570 personal allowance threshold.”
However, Suter said it is people who drift into higher tax bands who bear the biggest brunt.
From 2024/25 to the current 2025/26 tax year, a further half a million people are estimated to move into the higher rate taxpayer bracket. They now account for almost a fifth of all taxpayers and in London, a third (32%) of all taxpayers are now in the higher or additional rate tax bracket.
Rachael Griffin, tax and financial planning expert at Quilter, said: “The Treasury has grown hooked on the tax revenues this freeze generates and like any addiction, it may prove difficult to kick even when the damage becomes clear.
“Many more people are now finding themselves caught in the so-called £100,000 tax trap where the system can feel particularly punitive. Parents in this bracket not only see their personal allowance taper away, creating effective tax rates of over 60%, but also face the loss of child benefit and other reliefs.
“The cumulative effect is a system that can actively disincentivise progress and dampen ambition at precisely the point where people should be encouraged to advance.”
