HMRC issues 'unexpected' £655 tax bill to 700,000 pensioners

A growing number of people are being hit with end of year tax demands from HMRC with the increase being in part due to the rising level of the state pension and frozen tax thresholds.

700,000 pensioners have been slapped with an unexpected tax bill from HMRC demanding £655. A growing number of people are being hit with end of year tax demands from HMRC with the increase being in part due to the rising level of the state pension and frozen tax thresholds.

HMRC is asking for an average of £665 each. In 2022/23, the most recent year for which figures are available, 696,991 were hit with a demand letter from the taxman, according to data released to former pensions minister Sir Steve Webb via freedom of information request.

Sir Steve Webb said: “The long-term freeze in the value of the tax free personal allowance is dragging more and more people into the income tax net, including many pensioners. Where the tax due can be collected via a tax code on a wage or a private pension payment then the taxpayer does not need to take any further action.

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“But if someone is over the tax threshold purely on the basis of state pension and investment income, they may well find they receive an unwelcome demand at the end of the tax year. More and more people every year are finding themselves faced with such demands and will need to budget in anticipation.

"Although an average bill of £665 may not sound very large, it could be the equivalent of about three weeks’ pension and a pensioner whose income is only just above the tax threshold may not have such a sum readily available”.

As the personal allowance threshold remains fixed at £12,570 since April 2021, more retirees are finding themselves pushed into the tax net. Caroline Abrahams, charity director at Age UK, said: "These numbers are high, and we are worried about how many older people this is affecting.

"Freezing tax allowances over a period when inflation has been surging means more older people are having to start paying income tax while others are facing higher tax bills."