Pensioner fuming to find 10.1% state pension rise is wiped out by tax bill: 'Ultimate stealth tax!'
The state pension increased by 10.1 per cent in April this year
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A pensioner has shared her anger at finding out the 10.1 per cent state pension rise she was expecting this financial year is being eroded as she now has to pay income tax.
Linda Cobley, 72, is urging the Government to cancel the six-year freeze to the personal allowance, which will remain at £12,570 until 2027-28.
She previously didn’t get enough taxable income to pay the tax, but the state pension rise and frozen personal allowance thresholds mean she’s now caught in the tax net.
Mrs Cobley’s husband, 74, was told around four years ago that he had to pay income tax, as his annual income was greater than the personal allowance.
The personal allowance has been frozen for six years
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He had worked for about a week beyond his state pension age, resulting in a tax demand of around £250.
Mrs Cobley, who doesn’t get the full state pension, was advised the couple could benefit if she transferred some of her personal allowance to her husband, via the Marriage Allowance.
She said: “I’ve worked all my life but I’ve only ever paid Married Woman’s Stamp. I didn’t pay the full stamps so my pension from the Government is not a full married woman’s pension anyhow.”
She applied to transfer some of her personal allowance so her husband wouldn’t need to pay tax anymore, which continued for subsequent years. However, around two weeks ago, Mr Cobley received another tax demand for £127, as he has now breached his personal allowance again.
Mrs Cobley gets a small private pension income as well as her small state pension, and within the last few months, she’s also started paying income tax.
She said: “I thought, ‘That can’t be right’. But then, when we looked into it, we realised the Government are pumping up themselves by saying we’re giving the pensioners a 10.1 per cent pay rise – but they are freezing their tax allowance!”
She told GB News: “We’re not getting anything. It makes me feel very very angry.”
Alice Guy, head of pension and savings at interactive investor, said freezing tax thresholds is the "ultimate stealth tax" as "not many people take much notice of tax thresholds".
She added: "In a time of high inflation, it’s an especially effective policy and will have a big impact on people’s spending power over time. Sadly it will often be the poorest taxpayers who are affected the most, as they see their income eroded in real terms over time.”
According to the Office for Budget Responsibility, the six-year freeze takes the personal allowance’s real value in 2027-2028 back to its 2013-2014 level.
Any taxable income above the £12,570 threshold in the basic rate band is taxed at 20 per cent, and with it frozen for six years, more people are set to be affected in the future.
Ms Guy explained: "The threshold for paying income tax is expected to stay at the same level until 2028 meaning pensioners pay tax on more and more of their income over time."
It's something Mrs Cobley is seeing already, having spoken to several other pensioners who now need to pay tax.
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Mrs Cobley has urged the Treasury to abolish the six-year freeze to the personal allowance
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She told GB News: “They’re giving it to us in one hand and then taking it away with the other. It makes me feel very very angry.”
The figures used for the triple lock will be published within the next couple of months, but whatever the increase may be, Mrs Cobley isn’t expecting it to be of much use.
She said: “It’s all going to go away again in tax because they’re not upping our tax allowances – they’re freezing it.”
The retiree is urging the government to cancel the personal allowance freeze.
Mrs Cobley said: “It’s so underhanded. They are saying, ‘We are giving the pensioners a 10.1 per cent pay rise and we’re going to ringfence the pensions’. Well yes, they are ringfencing the pensions but they’re not upping the tax relief that we get.”
A Treasury spokesperson said: “Our older population have the right to security and dignity in retirement which is why this year we provided the biggest ever cash increase to the state pension, a 10.1 per cent rise, which comes on top of extra direct cash payments worth up to £1,350 each to support with cost of living challenges and protection from rises in energy bills.
“We have taken three million people out of paying tax altogether since 2010 through raising personal thresholds, and the Chancellor has said he wants to lower the tax burden further but sound money must come first.”