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Sunak’s stealth tax raid to catch 900,000 pensioners

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Rishi Sunak’s stealth tax raid will hit as much as 900,000 pensioners with a wonder earnings tax invoice subsequent yr, new evaluation shows.

The Prime Minister’s six-yr freeze on tax thresholds will pressure loads of hundreds of retirees claiming a married couple’s tax wreck to pay a levy on their kingdom pensions for the primary time.

The marriage allowance enables one half of a couple to transfer a tenth, or £1,260, of their personal tax-free allowance to the other, saving them up to £252 a year provided the other is a basic rate tax payer.

Around 40pc, or 900,000, of the 2.28m people who currently claim the relief are pensioners, according to HMRC data obtained via a Freedom of Information request.
With the tax-free income threshold frozen at £12,570 since 2021, it means the relief on offer has not kept pace with big increases in the state pension.

The new flat-rate state pension is set to rise by 8.5pc to £11,502 a year from April. This means it will be worth more than 90pc of the personal allowance, or £11,313, for the first time, leaving couples with an initial tax bill of £39.

This number is expected to grow to hundreds of pounds by the end of the decade if thresholds remain frozen under current rules, voiding the benefits of a tax break introduced just a decade ago.

Two former pensions ministers urged Chancellor Jeremy Hunt to do more to protect a growing number of retirees from being hit by tax bills.

Sir Steve Webb, pensions minister between 2010 and 2015, said: “Large rises in the state pension coupled with freezes in tax allowances are dragging large numbers of pensioners into the tax net.”

Sir Steve, now a partner at consultants LCP, added: “Extra complexity arises for 900,000 pensioners using the marriage allowance, many of whom need to make a decision about whether to stop sharing their tax allowance now that they are becoming taxpayers in their own right.”

While he noted that some of these people will be receiving the less generous basic state pension, he added: “HMRC estimates that over 8m pensioners will pay tax this year and more next year, and that’s the majority of all pensioners.”

The marriage allowance was introduced by former prime minister David Cameron in 2015, when the state pension lagged far behind personal income tax allowances.

However, several years of big cash increases, boosted by the state pension triple-lock that ensures annual payments rise by the highest of pay, prices or 2.5pc, have closed the gap.

HMRC is already under pressure after around 1m people missed the January 31 self-assessment deadline, many complaining of 40-minute wait times. Thousands have been forced to complete a tax return for the first time owing to fiscal drag, which forces people to hand more of their pay rises to the taxman as wages rise and tax bands remain frozen.

Baroness Ros Altmann, who succeeded Sir Steve as pensions minister in 2015, warned many over-65s were now facing a surprise demand from HMRC next year.

“The trouble is many won’t know that they might need to pay some tax and they won’t find out quickly. But eventually they will just be hit with a bill.

“What I’d like to see is HMRC and the Department for Work and Pensions connecting the dots to each other. And if there is a small tax bill to be paid, it is paid automatically without you having to do anything.

“That’s not the kind of money that many pensioners just have lying around, especially those who rely on just the state pension and nothing else. Something is not working. We need to raise the tax threshold to try and ensure that people who are not living on generous, huge pensions don’t face the complexities involved in paying tax.”

Sir Steve added: “Pensioners on a modest income should be spared the hassle in retirement of dealing with the tax office. The Government needs to think carefully about raising the starting point for tax to make sure that pensioners with limited means no longer face annual tax bills.”

A Treasury spokesman said: “Pensioners whose sole income is the new state pension and who have not deferred or receive protected payments do not pay any income tax, and this year we provided the biggest ever cash increase to pension payments, a 10.1pc rise.”

Fiscal drag is already hitting workers. The Office for Budget Responsibility (OBR) predicted last November that extra three million workers will be dragged into the 40p rate of income tax over the next five years as thresholds remain frozen.

It also means a further 4m workers on relatively low incomes will be captured by the tax system for the first time.

A spokesman for the Treasury said: “Our tax burden remains lower than any major European economy – and by increases to personal thresholds since 2010 we will have taken 3m people out of paying tax altogether.”

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Daily Dazzling Dawn is the first and only international and non-profitable newspaper, which is 100% ownership of professional journalists from Bangladeshi origin with 20 years of experience in global journalism. The main aim of the newspaper is promoting ethical journalism with truth, accuracy and proficiency.

Editor in Chief

Dulal Ahmed Chowdhury

Dulal Ahmed Chowdhury is the Editor of The Daily Dazzling Dawn. Previously, he has been serving in important positions in all the famous national dailies of the Bangladesh since the nineties. He has played a commendable role in journalism by participating in various events at the national and international levels. United Nations Conference, World Climate Conference, SAARC Summit are notable among them.

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