Some 140,000 pensioners will be hit with tax bills in the next six weeks as a stealth raid on retirement incomes bites.
HM Revenue & Customs (HMRC) is issuing issue tax demands to pensioners whose income exceeds the £12,570 personal allowance threshold which has been frozen until 2027-28.
It will be the first time these pensioners have received a tax demand since they retired.
HMRC said it will be writing to 560,000 customers over the next six weeks who have not paid enough tax, including 140,000 pensioners.
These people have taxable income but are either not in Self Assessment, or HMRC cannot automatically deduct the tax owed via a PAYE tax code.
Instead the tax is paid through a “simple assessment”, meaning the customer does not have to fill out a tax return.
Steve Webb, a former pensions minister, now partner at pensions consultancy 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.”
Bumper boosts to the state pension in recent years have meant more retirees being dragged into the tax net.
The “triple lock” ensures the state pension rises each year by the highest of inflation, average earnings or 2.5pc.
The full state pension is now £11,502 after an 8.5pc rise in April and a record 10.1pc hike in 2023.
It means anyone receiving this amount as well as a modest private pension income of just over £1,000 would incur a tax bill.
The complexities and allowances in the pension system mean an estimated 2.5 million people already receive a state pension that exceeds the personal allowance – even without any additional income, according to analysis by LCP.
Income tax thresholds were frozen until 2027-28 under the Tories in 2020-21. Labour has committed to keeping the thresholds frozen until at least this date.
Over 60pc of over-65s now pay income tax, up from around 50pc in 2010, according to the Institute for Fiscal Studies.
Research by the House of Commons Library showed that this total will increase still further over the next four years.
It found that, in the 2023-24 financial year, up to 1.2 million more pensioners were expected to pay income tax than if the threshold had been increased along with prices since 2021. By 2027-28, this total will have risen to between 1.4 million and 1.6 million.
Mr Webb said that there was a risk that scammers would catch on to the fact that HMRC was issuing tax bills, and send out fake letters to swindle money out of pensioners.
He added: “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”.
The Treasury was approached for comment.
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