HMRC warning as pensioners earning over £12,000 could pay more tax without knowing

Pensioners earning more than £12,000 a year have been cautioned that they may soon part with some of their income to HMRC. The alert comes in the wake of the Budget announcement by Chancellor Rachel Reeves, who stated that income tax bands would stay static until 2028.

The basic rate of income tax threshold is currently at £12,570, indicating that low-income pensioners whose earnings exceed this figure in the forthcoming years - especially as inflation sees their income go up - will be liable for tax. As income tax bands remain unchanged while wages, benefits, and pensions rise, more individuals could end up paying higher taxes.

Moreover, due to the triple lock guarantee, pension rates often outpace inflation, with an anticipated increase of about 4% next April. Ms Reeves has made it clear that the freeze on tax thresholds will not be extended beyond 2028, and will instead start to increase with inflation from then on - which should reduce the problem, albeit in four years.

The freeze on thresholds is seen as a method to raise tax revenue without resorting to overt increases, leading critics to describe it as a "stealth" or "hidden" tax. Households with higher incomes may also see an increase in their tax payments, as the 40% higher rate will kick in once an individual's earnings exceed £50,270.

Simon Rothenberg of Blick Rothenberg commented to say: "Rachel Reeves' final comment on tax was to say she wasn't going to freeze beyond the previous Government's decision, but given she has made changes to many of their decisions, she could well have stopped that now." He added: "However, she didn't and indeed it will only be one year of an increase before the next election. Four more years of fiscal drag."