HMRC has changed the tax band for one million state pensioners, as Labour Party Chancellor Rachel Reeves's tax raid has pulled over 300,000 more individuals into higher tax rates. The number of additional rate taxpayers surged to 893,000 by the end of 2024, with HMRC data showing 324,000 more people now caught in the highest income tax band.
Sharp Increase in Additional Rate Taxpayers
Figures reveal a 56.8% jump in the number of additional rate taxpayers between the 2022/23 and 2023/24 tax years. By the end of that period, approximately 893,000 individuals were paying the top rate. This represents a rise of nearly £20 billion in tax liabilities for top earners, climbing 23.9% compared to the previous year.
Impact on Pensioners
The number of taxpayers of pension age increased by 1.02 million, or 14.4%, since the previous tax year, as the triple lock continues to push retirement incomes upward. This means people of state pension age now account for 22.2% of all taxpayers and 16.2% of total income. There were almost 8.2 million people of state pension age paying tax, and 7.8 million people whose main source of income was their pension, according to the research.
Expert Commentary
Rachael Griffin, tax and financial planning expert at Quilter, commented: "While part of this increase reflects demographic change as the pension-age population grows, rising retirement incomes combined with frozen allowances are clearly playing a major role. The triple lock has been vital in protecting pensioner incomes during a period of high inflation, but its interaction with frozen personal allowances is creating unintended consequences. In practice, state pension increases designed to preserve living standards are increasingly being clawed back through tax, particularly where even modest private pension income is involved."
Griffin added: "Taxable savings interest more than tripled as rates rose, catching millions of savers off guard. While rates have edged down and are unlikely to return to their recent peaks, the episode has reinforced the importance of using ISAs to shelter savings from income tax. For those with a longer-term horizon, it may also prompt a rethink about relying too heavily on cash returns that may already be past their high point."
