Pensioners Now More Likely to Pay Income Tax Than Younger Brits!

It might come as a surprise, but these days, more people over 65 are paying income tax than those aged 16 to 64.

For many years, people over 65 enjoyed a higher personal allowance, meaning they could earn more before paying income tax. But things have changed, according to the Institute of Fiscal Studies.

The personal allowance hasn’t increased since 2010, meaning it’s worth less in real terms.

At the same time, the state pension has been increasing each year, keeping pace with inflation. This means many pensioners now earn enough to pay income tax, even if they only receive the basic state pension.

Why are Pensioners Paying More Tax?

The main reason is the frozen personal allowance. The “triple lock” makes sure the state pension keeps up with inflation, but the personal allowance hasn’t risen in line with that.

This means that while your pension is increasing, the amount you can earn before paying tax has remained the same.

More Pensioners Paying Tax

In 2010, only 48% of pensioners paid income tax.

But by 2023, for the first time, more pensioners were paying tax than those aged 16 to 64.

And the trend is likely to continue, with experts predicting that 66% of pensioners will be paying income tax in the near future.

Tax Revenue on the Rise

Frozen tax thresholds, along with other changes like the increase in corporation tax, have meant that tax revenue has been going up.

This is also partly due to economic changes, like people earning more money.

However, a major contributor to this increase is the change from using the Retail Prices Index (RPI) to the Consumer Prices Index (CPI) to measure inflation. CPI inflation tends to be lower than RPI, so tax thresholds increase by less each year.

This means the government collects more tax than it would have if the RPI was still used.