HMRC warning as new '£665' tax demand letters being sent to state pensioners

Simple Assessment letters are being sent to more people this year due to measures taken on tax allowance thresholds

A worrying 700,000 people will get a HMRC letter this year, many for the first time in their retirement. The letters hold an average tax bill of £665 each.

The 700k figure is up by 120,000 compared to two years ago, a Freedom of Information request by LCP Partners shows. Partner at pension consultants LCP, Steve Webb, told The Sun it could be devastating for retirees.

He said: “It could be the equivalent of about three weeks’ pension and a pensioner whose income is only just above the tax threshold may not have such a sum readily available.” The letters are part of HMRC’s “simple assessment” process which highlights who needs to pay tax. They should include a detailed calculation of your owed tax on the income you received between April 2023 and April 2024.

Brits have until January 2025 to foot the bill and it can be paid in instalments so long as it’s fully covered by this deadline. More information on the Simple Assessment payment can be found online.

Many pensioners might also be completely blindsided by this bill as they may not have noticed any major changes to their finances over the last few years. Instead, this bill is largely due to the frozen income tax allowance thresholds paired with an ever-rising state pension - which push more people into paying tax.

It’s a legacy from former Prime Minister Rishi Sunak when he was Chancellor of the Exchequer and froze the personal allowance and higher-rate thresholds for income tax in 2021. This was to raise extra tax income without directly increasing taxes. The freeze was initially meant to be for 4 years but his successor, Chancellor Jeremy Hunt, extended it by another two years.

Unless the Labour government intervenes, the freeze will see the basic allowance people can earn per year without incurring income tax staying at £12,570 until 2027. The annual rise in state pension payments promised to Brits by the triple lock mechanism helps to update their income in line with rising cost of living but is now pushing thousands over this tax-free threshold too.

The full new state pension is currently £11,502 per year and next April it is expected to rise to £12,003.68. But it’s not just state pension that count towards income tax for retirees: any personal or workplace pensions, rental income, trust income, interest on savings and even some state benefits will also be included in their yearly total.