UPDATE: |HMRC letter to demand 650,000 pensioners pay more tax – check if it applies to you News

Thousands of pensioners will be dragged into paying more tax due to a rule change this week

From this week, 650,000 pensioners are set to be hit with higher tax bills due to HMRC changes. The Labour government has seen state pension payments surge to £11,973 annually starting from April, leading to an unexpected financial pinch.

The increase, though welcomed and courtesy of the Department for Work and Pensions (DWP), means a significant number of seniors will find themselves liable for income tax in the next year.

This situation arises as income tax thresholds are on ice until 2028, which brings more individuals into the tax-paying bracket because their earnings exceed the personal allowance. Currently, the personal allowance remains at £12,570; earnings beyond this are subject to taxation, reports Birmingham Live.

For pensioners, this could mean tax payments on their state pension by 2025/26 due to other supplementary incomes and benefits.

Pension expert Steve Webb, a partner at LCP, weighed in: “The repeated freeze of the income tax threshold, coupled with some quite significant increases in the state pension have meant more pensioners paying more tax.”

He added: “But it has also meant an increase in the number of pensioners whose state pension on its own is enough to take them into the tax net. This figure rises by an extra 650,000 as a result of this April’s pension rise.”

Jon Greer, head of retirement policy at Quilter, has warned: “That leaves the UK potentially only one year away from pensioners having to effectively hand a portion of their state pension back to the Exchequer in tax, which to many would seem perverse.”

He also noted that “Reeves had committed to keeping allowances frozen until 2028 but, depending on what the actual uprating figure may be, could look to avoid the full state pension exceeding the personal allowance via the Autumn Statement later this year.”

Greer added, “What was intended as a mechanism to protect pensioners from poverty is now colliding with fiscal drag.”

HMRC Simple Assessment letter

HMRC will issue a Simple Assessment letter if you need to pay tax on your State Pension or owe HMRC £3,000 or more. This letter will generally be sent through the post or be added to your personal tax account if you have one.

The letter will typically show your taxable income which will include any pensions and state benefits you have as well as the amount of tax you owe to the department. Keep in mind that after receiving this letter you should check the numbers in your letter match those in your personal records (such as your P60 or bank statements).

If you don’t believe the calculations in the letter are correct, you must contact HMRC within 60 days and explain to them which specific amounts in the letter are incorrect and what you think they should be. If HMRC agrees with your response then you will receive a new and updated Simple Assessment letter.

However, if they disagree you will instead receive a letter explaining their decision and why it was made as well as how you can pay or appeal. You will also be required to pay the Simple Assessment tax bill by HMRC’s deadline unless they tell you the payment date is delayed.

Further details on how to make a tax appeal to HMRC can be found here.