More than one million pensioners are now paying income tax at the higher rates of 40% or 45% in the current tax year. This figure has doubled in the last five years, according to a freedom of information request submitted by pension consultants LCP.
In the 2021/22 tax year, 494,000 retirees were paying at these higher rates. The number paying the additional rate of 45% has roughly trebled during this period, rising from 39,000 to 115,000.
The increase follows the extension of frozen income tax thresholds until the end of the decade by former chancellor Rachel Reeves in the 2025 Autumn Budget. The 40% income tax threshold has been frozen at £50,270 since 2021/22, and the 45% threshold at £125,140 since the 2023/24 tax year.
This freeze, combined with increases to the state pension due to the triple lock policy, has resulted in more pensioners being drawn into higher tax bands. The Treasury estimates this extension will generate approximately £12bn in extra revenue.