650,000 pensioners risk paying more tax this week after HMRC rules change

650,000 pensioners could be at risk of paying more tax as revised HMRC rules take effect. With the state pension swelling to £11,973 annually from April under Labour's governance, many face a tighter squeeze on their finances.

Despite the welcome boost from the Department for Work and Pensions (DWP), the frozen income tax thresholds till 2028 spell an inevitable snare in the tax net for countless seniors, with personal earnings eclipsing the stagnant personal allowance of £12,570, leading to mandatory tax contributions, reports Birmingham Live.

The spectre of taxation over pensions intensifies, with forecasts suggesting tax dues on state pensions by the fiscal year 2025/26, spurred on by additional income streams and benefits.

LCP's Steve Webb, a pension pundit, illuminated the taxing scenario: "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."

Webb continued with concern: "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."

Expressing concerns, Jon Greer, the head of retirement policy at Quilter, 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 continued, highlighting 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 also commented on the broader financial impact stating, "What was intended as a mechanism to protect pensioners from poverty is now colliding with fiscal drag."

Information for pensioners about HMRC communications was also shared. If pensioners need to pay tax on their State Pension or owe more than £3,000 to HMRC, a Simple Assessment letter will be issued.

This letter, commonly sent through post or added to a personal tax account, comprises details of taxable income including any pensions and state benefits received, along with the tax payable. Pensioners are advised to verify that the figures in this letter correspond with their personal records like P60 forms or bank statements.

If you dispute the calculations in the letter, it's crucial to contact HMRC within 60 days and clarify which specific amounts in the letter are incorrect and what you believe they should be. If HMRC concurs with your response, you will receive a revised Simple Assessment letter.

However, if they disagree, you will receive a letter detailing their decision, the reasoning behind it, and instructions on how to pay or appeal. You will also be obligated to settle the Simple Assessment tax bill by the HMRC deadline unless informed otherwise.

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