Frozen Tax Thresholds Trap 77,000 UK Retirees in 60% Rate
Approximately 77,000 people aged 66 and over faced an effective 60% income tax rate in 2024/25 due to frozen thresholds and fiscal drag.
Roughly 77,000 individuals aged 66 and over were caught in an effective 60% income tax trap during the 2024/25 tax year. This figure is more than double the 34,000 to 38,000 retirees affected in 2021/22, according to data obtained by interactive investor from HM Revenue & Customs.
The steep rate applies to those earning between £100,000 and £125,140 because the £12,570 personal tax-free allowance is withdrawn by £1 for every £2 earned over the £100,000 mark. This surge is attributed to fiscal drag, as tax thresholds have remained frozen since 2010 and 2021, failing to keep pace with inflation.
Additional pressure comes from policies introduced by Rachel Reeves, who announced that pensions will be subject to inheritance tax starting in April 2027. Experts suggest this change may encourage wealthier pensioners to increase their withdrawals and spend money sooner to avoid the future tax. Current tax thresholds are scheduled to remain frozen until 2028/29, though there is speculation the government could extend this freeze to generate further revenue. Analysts warn these punitive rates could discourage older, experienced talent from remaining in the workforce.
