Urgent HMRC warning to pensioners who earn over £12,000

Any pensioners who earn more than £12,000 in a year have been warned they might soon lose some of it to HMRC. The warning has been issued following the Budget, when Chancellor Rachel Reeves confirmed income tax bands would remain frozen until 2028.

The threshold for the basic rate of income tax is £12,570. It means any low-income pensioners who see their earnings climb above that amount in the coming years will find themselves having to pay tax.

As the bands stay frozen but people's pay, benefits and pensions increase, some get dragged into paying more tax. And because of the triple lock guarantee, the pension rate often increases faster than inflation. The rate is set to go up by around 4% next April.

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Ms Reeves confirmed the tax thresholds would not be extended beyond 2028, as some thought might happen. From that point, they will continue to rise with inflation.

Freezing the thresholds is a way of getting people to pay more tax without having to announce hikes in the traditional way. For this reason, critics have labelled it a "stealth" or "hidden" tax.

Higher earning households could also find themselves paying more, with the higher 40% rate beginning when someone's income reaches £50,270. Simon Rothenberg, a Partner at Blick Rothenberg, said: “Rachel Reeves’ final comment on tax was to say she wasn’t going to freeze beyond the previous Government’s decision, but given she has made changes to many of their decisions, she could well have stopped that now.

"However, she didn’t and indeed it will only be one year of an increase before the next election. Four more years of fiscal drag.”