The number of pensioners paying a penalty of 60 per cent tax rates has doubled in just three years, as the tax freeze drags tens of thousands out of the top bracket.
New figures from HM Revenue & Customs show that around 77,000 people aged 66 and over fell into the “60 per cent tax bracket” in the last tax year – up from 38,000 in the 2021-222 year.
The steep rate applies to anyone earning between £100,000 and £125,140 a year. Within this band, people lose 60p of what everyone else gets because the tax-free allowance is $12,570 away if the income is £100,000.
The threshold has been reduced since 2010, and if it had kept pace with inflation, it would now stand at around £155,000. Analysts say this freeze – and the wider “deductibility” caused by standard tax bands – has squeezed the growing number of workers and pensioners into punitive tax havens.
Craig Rickman, personal finance editor at Interactive Investor, who obtained the information through a freedom of information request, said the figures show “the impact of a 60 percent tax penalty.
“A lot of people are working well into their late sixties now,” she said. “But there is a real risk that higher tax rates could push skilled workers out of the labor market – where the economy needs their skills the most.”
Under the rules, for every £2 of income over £100,000, taxpayers lose £1 of their allowance. The allowance is completely withdrawn if income hits £125,140. Combined with the top tax of 40 percent, this creates an effective Marginal rate of 60 percent.
For example, someone earning £100,000 gets a $10,000 income tax increase – but they can also lose $5,000 of their own allowance, adding another $000 to their tax bill. In total, they would pay $6,000 – 60 percent – of that extra $10,000.
The onslaught on over 65s facing high tax bills also reflects the growing number of retirees drawing huge sums on their pension savings. Withdrawals have increased significantly since Chancellor Rachel Reves announced plans to bring pensions on this inheritance tax benefit from April 2027.
The finance authority says £70.9 billion was withdrawn from first-time pensions in 2024-25 – up 36 per cent from the previous year.
Tom Selby, Director of Public Policy at AJ Bell, said: “Bringing pensions into private homes boosts pensioners’ motivation very quickly.”
The tax thresholds have not been raised since 2021, meaning the increase in the rate is pulling millions of taxpayers into the higher bands each year. The Office of Budget Burden has warned that if the freezes continue, 4.2 million people will pay income tax by 2030, and another 3.5 million more will be higher rate taxpayers or higher.
Snows are also very profitable for the Treasury. The Center for Financial Studies estimates they will raise £40 billion a year by 2027-28 – roughly the same as the increase in basic income tax.
Under the current policy, the thresholds will start again in 2028-29, but assumptions are made when the reves can increase the freeze as part of his quest for new money before the November 26 budget.
For many pensioners, that would mean another year of another of Britain’s punitive – and politically explosive – tax traps.
