This will be the first time many retirees will be asked to pay income tax, with many having to do so following the tax thresholds freezing, as announced in the Conservative Party’s final Budget in March.
Around 8.95 million retirees in 2024/25 will pay income tax, compared to 8.27 million the year before and just 4.9 million in 2010/11, according to Government data.
This is because of the effect of the tax bracket freezing for the 2023/24 tax year, while the state pension rose by 10%.
HMRC will tell customers: “Over the next six weeks, we’re writing to around 560,000 customers who have taxable income but who are not in Self Assessment, or for whom we can’t automatically deduct the tax owed via a PAYE tax code.
“The letter will include a detailed calculation of any tax due for income they received between April 2023 and April 2024.”
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It adds that they will have to pay what they owe using a Simple Assessment form, which will be the first time many pensioners will have encountered one.
As well as pensioners, it’s a consideration for hundreds of thousands of workers too. But there are ways you can legally shield your earnings if you have fallen into a higher tax rate.
While this may come as an unwelcome surprise to many people after their working life finishes, HMRC has reminded recipients of the letter that they usually have until January 2025 to pay their tax bill. If needed, they can pay in instalments, as long as the bill is paid by that deadline.
‘Size of the bill could grow year-on-year’
Steve Webb, partner at pension consultant LCP, said: “It is rarely good news to receive a letter from HMRC, and in this case, 140,000 pensioners will be getting a tax demand in the next few weeks for the first time since they retired.
“The size of the bill will often be relatively small at first, but this could grow year-on-year if the current policy of freezing tax thresholds continues. The recipients of these letters are not well-off, and some will have a living standard below the pensions industry’s assessment of the ‘minimum’ income needed for a basic quality of life.”
Webb added: “There is also a risk that scammers will catch on to the fact that these letters are being sent out and come up with fake letters trying to get money out of pensioners. The new Government needs to take an urgent look at whether taxing so many people on such modest levels of income in retirement is really the right way to proceed”.
