More than 2.5 million British pensioners are being dragged into the tax net as frozen income thresholds collide with rising state pension payments, experts warn.
The Frozen Threshold Trap
The personal allowance - the amount you can earn before paying income tax - has been frozen at £12,570 since 2021 and will remain there until at least 2028. Meanwhile, the new state pension has risen to £11,502 annually, leaving retirees with just £1,068 of tax-free space for additional income.
Who's Affected?
- Basic rate taxpayers with modest private pensions
- Those earning from part-time work in retirement
- Pensioners with savings interest above £1,000
Why This Matters Now
With April's 8.5% state pension increase, thousands more pensioners will cross the tax threshold for the first time. Many may not realise they owe tax until receiving an unexpected demand from HMRC.
Financial expert Sarah Coles warns: "The combination of frozen thresholds and rising pensions means more retirees face paying tax on their state pension. Many will be shocked to discover they owe money."
What Retirees Should Do
- Check total income including state pension, private pensions and savings
- Register for self-assessment if earning above £12,570
- Consider tax-efficient savings options like ISAs
