The number of pensioners paying income tax has increased by 25% in four years

• 8.5 million over-65s will be subject to income tax this year, up from 6.8 million in 2020-21
• 5.6 million will pay the high rate of income tax, a 41% increase compared to 2020-21.
• About 15.6% of income tax payers will pay the top 40% this year

A further 800,000 pensioners will pay income tax this year as high inflation pushes up state pensions and freezes tax breaks.

HMRC figures show that 8.5 million people aged 65 and over will be subject to income tax this year, up 10 per cent on the 7.7 million in 2022-23 and a quarter more than the 6.8 million in 2020-20. in 21 years.

That means around two-thirds of over-65s who receive a state pension, with only a small amount of additional income from a workplace pension or other nest egg, will be caught in the tax trap.

Steve Webb, former pensions minister and This is Money’s uncle of pension torment, says: “The combination of high inflation and frozen tax breaks means that more than eight million people aged 65 and over now pay tax, which has doubled in the past two decades.

“The number of tax-paying pensioners will continue to grow rapidly in the coming years, especially if inflation remains relatively high and the caps continue to freeze.”

Pensions ‘triple lock’ ensures state pension rises every April in line with either the previous September’s highest inflation rate, earnings growth, or the 2.5 percent rate.

Meanwhile, about 5.6 million people will pay the higher rate of income tax, a 41 percent increase from 2020-21.

That means 15.6 per cent of income tax payers will pay the higher rate of 40 per cent this year, according to HMRC.

There are also an extra 862,000 people who will pay additional income tax, a 99 per cent increase on four years ago.

The total number of taxpayers of all ages is estimated to increase by 1.3 million annually, reaching 35.9 million in 2023/24.

This follows a four-year freeze on tax thresholds by the then chancellor Rishi Sunak in 2021, which set the personal allowance, the point at which workers start paying income tax, at £12,570 from 2022 to 2026.

Chancellor Jeremy Hunt then extended the freeze for another two years.

The Resolution Foundation warned this week that the freeze would cost every UK household £4,200 in extra tax by 2027-28.

Anthony Watling, partner at wealth management firm Evelyn Partners, says: “A higher rate used to be considered the domain of the well-off, but many who now pay 40 per cent income tax won’t feel that way. , especially in the current financial environment.

But while many more will become higher-rate taxpayers, lower-income earners will be hit particularly hard, seeing their income taxed 20 percent more, according to Interactive Investor.

A person earning £20,000 in 2022/23 will pay £870 more by 2028 due to the fiscal drag – the equivalent of a 10p rise in income tax, according to calculations by the investment platform.

Meanwhile, someone earning £50,000 in 2022/23 will pay £1,924 more by 2028 due to the fiscal drag, equivalent to a 5p rise in income tax.

Alice Guy, Head of Pensions and Savings at Interactive Investor, says:

Freezing tax brackets is the government’s preferred way of raising the tax burden, and tax brackets are expected to remain frozen until 2028.

“These policies have an unfortunate effect in times of high inflation, as many of us are dragged into paying a higher rate of tax.”