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Disabled pensioners are being dragged into paying income tax for the first time as a result of a freeze on tax thresholds.
The personal allowance threshold on tax-free income has remained frozen at £12,570 since March 2021 and is set to remain at the same level until at least 2027/28 following Chancellor Jeremy Hunt’s Budget. Labour is also refusing to commit to unfreezing the threshold.
However, the state pension is set to increase by 8.5 per cent in April following a succession of rises under the triple lock, which will mean that retirees receive a full state pension of more than £11,500 from April.
Age UK has warned the policies are pushing a growing number of pensioners who receive other allowances such as disabilities benefits into paying income tax for the first time since retiring.
Kim Parker, 62, said her mother Muriel, 84, last week received a letter notifying her that her tax code had changed because her pension now exceeds the tax-free personal allowance, meaning she will will have to pay income tax for the first time in 15 years, adding further financial strains on her end-of-life care.
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“She has been retired for over 15 years, and being a low earner, she hadn’t paid income tax in all that time,” Kim told i, explaining that her mother had previously worked as a caterer in Beales department store in Bournemouth, where she continued to work past retirement age.
“It was a bit of a shock for her to have to start paying tax again.”
Muriel, who lives with her daughter in Branksome, Dorset, receives on top of her state pension a small annuity from her late husband’s private pension as well as an attendance allowance, paid to pensioners with severe disabilities who require regular care.
Kim said most of her mother’s income goes towards paying for her care. She added: “She really doesn’t earn very much.
“I just feel that not putting the tax threshold up, but giving tax cuts is socially regressive. It’s shifting the burden of taxation from those who can afford it to those who can least afford it.”
Kim said she “just about” manages her mother’s finances but the additional “hidden costs” of her care, such as specialist hearing aids and materials to store medical equipment, coupled with the rising cost of living had increased the strain.
The full-time carer, who works as a script analyst, has not been able to live at her home in Paris for more than two years due to caring for her elderly mother.
“I came home for Christmas in 2021 and my dad was diagnosed with brain cancer and he died three months later. Then I took over care of my mum when she was still a little bit mobile,” she said.
Kim said her mother became “more and more dependent and it became increasingly challenging”. Muriel then broke her ankle on Christmas Day 2022 and “has not walked since”, now “requiring an even more intense care level”.
Christopher Brooks, the head of policy at pensioners’ charity Age UK, echoed Kim’s call, urging the Government to raise the tax-free threshold or even restrict those reliant on the state pension from paying any income tax.
“The Budget didn’t have very much in it for pensioners and, obviously because pensioners don’t currently pay national insurance, when it’s cut, it doesn’t benefit them in any way,” he told i, referring to the Chancellor’s flagship 2p tax cut policy.
“We were hoping for more support for pensioners which wasn’t forthcoming,” Chris said. “It was a bit of a disappointment really. I think it just hasn’t helped some of those who are most in need in our society.”
He said Age UK hears daily from pensioners struggling to put food on the table and heat their homes.
“If tax thresholds continues to be frozen, it’s not long until even people who are completely reliant on the state pension will be paying some income tax,” he added.
Financial experts have warned if the state pension continues to rise at its current rate, it could start incurring income tax as it hits around £12,600 by April 2027.
Tom Selby, director of public policy at AJ Bell, said: “Retirees will no doubt be rejoicing that both major parties appear set to recommit to the state pension ‘triple-lock’ for the next Parliament, with the gold-plated pledge potentially pushing the value of the state pension past £13,000 a year by the end of this decade.
“The next government needs to set a clear plan for the state pension, both in terms of what a ‘fair’ value is, perhaps as a proportion of average earnings, and the length of time retirees should be in receipt of it on average.”
