Two million more pensioners will pay income tax under Jeremy Hunt

Another two million retirees will have to pay income tax at retirement in the government’s latest hidden tax raid.

Chancellor Jeremy Hunt is expected to announce a major tax border freeze in his autumn statement next week as he looks to raise £50 billion for the Treasury.

Hunt is likely to confirm that the triple lock system of state pensions will remain in place – with a 10.1% increase granted to retirees.

An analysis by The Telegraph revealed that the combination of the triple-lock boost and an extended freeze on the personal tax allowance would mean a total of nine million retirees will have to pay income tax, up 29% from the current total of seven million.

Two out of three retirees will be required to pay income tax.

The triple lock promises to increase state pensions in April each year in line with last September’s highest inflation, wage growth or 2.5%. If the triple lock were to be maintained, it would mean the annual state pension for new retirees would rise to more than £10,000.

After doubts over whether or not the Tory manifesto pledge was affordable, Labor and Pensions Secretary Mel Stride indicated today that the government will stick to its promise when he said “Retirees are definitely at the forefront of the group that we really want to protect as much as possible during these difficult times” .

But analysis by pension consultancy LCP revealed that the triple lock increase would push nearly half a million retirees into the personal tax allowance, which has been frozen at £12,570 through 2026 and is expected to remain at that level until 2028 under the Autumn Statement plans. .

Since the December 2019 elections, more than 1 million people over the age of 65 have been drawn into paying income tax, according to government figures. A total of seven million currently pay income tax.

Older taxpayers are higher due to a phenomenon known as “fiscal drag,” where inflation and income growth push income earners into higher tax brackets.

The LCP estimated that the total number of tax-paying retirees would rise to nine million if income tax limits remained frozen until 2028.

More than 12 million people currently receive a state pension, but an estimated 13.4 million will receive it by 2028, the LCP said.

Sir Steve Webb, of the LCP and former Minister for Pensions, said: “More than a million retirees have been brought into the tax net since the last general election and more could be forced to pay taxes for the first time if the current provision freeze is extended repeatedly.

This is a backdoor method for raising taxes, and it has a random effect because the future rate of inflation is unknown. The current freeze has turned out to be more brutal than expected due to the surge in inflation that occurred last year.”

Extending a lifetime allowance freeze also threatens to penalize the wealthiest pension savings. The life allowance is frozen at £1.073m until 2026, but this newspaper understands that the government will also extend this until 2028.

“If the freeze were extended further, we could easily have two million people in the workforce having to start thinking about putting an end to their pension savings in order to avoid tax charges,” Sir Steve said.

An analysis by wealth manager Coelter suggested that the two-year extension would force retirees to hand over an additional £400m in taxes.

A Treasury spokesperson said: “We are committed to protecting low-income families which is why we have increased the personal allowance by more than 40% in real terms since 2010, excluding low-income earners from paying income tax entirely.

Furthermore, our income tax system is very progressive with the top 50% of income taxpayers expected to pay around 92% of total income tax this year, while the bottom 25% are expected to pay only 2%.”

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