Pensioners who've already lost winter fuel cash face £665 tax bill this year

A freeze in the amount of income that can be earned before the taxman starts demanding money has seen a 100,000 rise in the number of people being hit with a bill

Pensioners who have lost their winter fuel payments are among the 100,000 people now facing tax demands for the first time. A freeze in the income threshold before tax is applied means more retirees are being forced to pay.

Research by ex-pensions minister Sir Steve Webb, a partner at LCP, found that the number of taxpayers receiving demands averaging £665 has increased by 120,000 compared to two years ago. This comes as Prime Minister Keir Starmer refused to rule out further tax woes in the budget on October 30.

Sir Steve argued that these figures indicate it's time for the government to adjust the personal tax threshold. He said: "The long-term freeze in the value of the tax-free personal allowance is dragging more and more people into the income tax net, including many pensioners."

"The long-term freeze in the value of the tax-free personal allowance is dragging more and more people into the income tax net, including many pensioners. Where the tax due can be collected via a tax code on a wage or a private pension payment then the taxpayer does not need to take any further action.

"More and more people every year are finding themselves faced with such demands and will need to budget in anticipation," reports the Express.

Although an average bill of £665 may not sound very large, it could be the equivalent of about three weeks' pension and a pensioner whose income is only just above the tax threshold may not have such a sum readily available. " Sir Steve has revealed figures from HMRC, obtained under the Freedom of Information Act, indicating an increase in the number of people receiving "simple assessment" tax demands at the end of the year.

This system targets individuals with income above the personal allowance threshold when such income cannot be taxed through a PAYE code on earnings or private pension income. The data shows that nearly 700,000 taxpayers were issued letters, averaging £665 each, marking an increase of 120,000 from 2021 to 2023. HMRC calculates these bills using information on state pension payments and investment income from financial institutions before issuing payment demands.

Sir Steve attributes the consistent rise in tax demands to the ongoing freeze in the tax-free allowance value coupled with the steady increase in the state pension value, pushing pensioners with minor private investments over the taxable threshold. With the new state pension potentially exceeding £12,570 in upcoming years, concerns are mounting. Caroline Abrahams, charity director at Age UK, expressed concern: "These numbers are high, and we are worried about how many older people this is affecting.

"Freezing tax allowances over a period when inflation has been surging means more older people are having to start paying income tax while others are facing higher tax bills.

"The last thing we want is for older people who are already struggling to manage financially to have to start paying income tax. It is high time the Government started increasing personal allowances again."

The new state pension could also rise above the £12,570 in the coming years. Caroline Abrahams, charity director at Age UK, said: "These numbers are high, and we are worried about how many older people this is affecting.

"Freezing tax allowances over a period when inflation has been surging means more older people are having to start paying income tax while others are facing higher tax bills. This is having a big impact on many with modest incomes - perhaps a small private pension on top of their state pension.

"The last thing we want is for older people who are already struggling to manage financially to have to start paying income tax. It is high time the Government started increasing personal allowances again."

Silver Voices warned that the problem will get worse unless Rachel Reeves changes the thresholds. Director Dennis Reed said: "Unless action is taken by the Chancellor to raise the lower tax threshold, hundreds of thousands more pensioners will find themselves sucked into paying tax by the end of this Parliament because they have a small private pension or a little income from a savings nest egg.

"The amounts being demanded by HMRC will be tiny, dwarfed by the administrative costs of collection, and can only be seen as a further punitive measure against older people. The previous Government proposed an age-related tax allowance to prevent such circumstances and Labour would do well to steal the idea."