HMRC warning as 420,000 state pensioners to be hit with unexpected tax bills for the first time

New figures from HMRC show that 8.7 million people over state pension age are expected to pay income tax in 2025/26. That’s an increase of around 420,000 compared to the previous year, and nearly two million more than in 2015/16.

Experts are blaming a combination of frozen tax thresholds and rising retirement incomes, including the triple lock on the state pension, which has seen annual payouts climb steadily in recent years.

David Brooks, head of policy at consultancy Broadstone, said: "We would expect a growing number of pensioners to be liable for income tax as the country’s demographic changes due to our ageing population.

"Fiscal drag, however, is also bringing hundreds of thousands more pensioners into paying Income Tax bracket every year as the frozen Personal Allowance thresholds combines with the triple lock-protected state pension."

The Personal Allowance, the amount people can earn before paying income tax, has been frozen at £12,570 until 2028.

Meanwhile, the full annual new state pension will hit £11,973 in 2025/26, putting many retirees close to or above the tax-free threshold.

Under the triple lock policy, both the new and basic state pensions rise each year by whichever is highest: average earnings growth from May to July, inflation (CPI) to September, or 2.5 per cent. The aim is to protect pensioners from the rising cost of living and stop the value of payments from falling behind.

In April, the state pension increased by 4.1 per cent. But Labour’s forecasts for the next four financial years suggest more modest annual rises of 2.5 per cent. Based on that, the full new state pension is set to hit £12,578.80 by 2027/28, just over the frozen personal allowance of £12,570.

While the impact may seem small at first, those with additional income from private or workplace pensions could find themselves owing hundreds, even thousands in tax.

Brooks warned: "While perhaps personally frustrating for many pensioners, it reflects the nature of inflation linked occupational pensions and a Triple-locked State Pension that continue to rise.

"The Government will be called on again to protect pensioners from this impact but with seemingly few ways to control the rise in pensioner incomes, taxation is the only tool left."

He also predicted that more retirees would start drawing income from their pension pots ahead of rule changes coming in 2027

He said: "We should also expect the income tax from pensioners to rise in coming years as more income will to be taken from pensions.

"Taking pension income is the key way to protect pension benefits from the impact of the Inheritance Tax Rules on unspent pension funds due to come in from April 2027."

Devastatingly more than one million pensioners across the UK are set to pay the higher rate of income tax this year as frozen tax thresholds push increasing numbers into the 40 per cent bracket.

Charlene Young, senior pensions and savings expert at AJ Bell, warned that "the nation has fallen victim to the effects of fiscal drag in recent years."

She explained that "frozen allowances and tax thresholds have pulled more people into the tax system for the first time and hiked the rates of tax people pay as their income rises and they breach a new tax band."

Young warned that pensioners were not being spared.

The pensions expert explained: "Pensioners are not shielded from it either - over one million people above state pension age will breach the higher rate 40 per cent threshold this tax year, more than double the number there were when the big freeze began."

Latest figures from the Department for Work and Pensions show that 13 million people have reached state pension age in Great Britain, with 8.51 million already paying income tax in the last financial year.

And with the government forecasting further state pension rises, the number of taxed pensioners is only expected to grow.