State pensioners face £2,500 tax hikes under Rachel Reeves’ proposed changes

Wealthy pensioners in the UK could face an average tax increase of £2,500 if Chancellor Rachel Reeves goes ahead with proposed income tax rises, data reveals. Ms Reeves has not ruled out tax hikes in the upcoming budget, emphasizing the need to address tough economic realities rather than ideal scenarios.

The Labour Party Chancellor hinted at increasing income tax rates despite previous manifesto promises to keep main rates steady. This move responds to the deterioration in public finances following “years of economic mismanagement,” making additional revenue necessary.

As a result, nearly nine million state pensioners might see higher tax bills, including roughly 124,000 who currently pay the top 45p income tax rate. These additional rate taxpayers earn £125,140 or more. At this income level, the £12,570 tax-free allowance is phased out, resulting in a 20% tax rate on the first £50,270, 40% up to £125,140, and any income above that taxed at 45%. The proposed two percentage point increase would mean an added tax burden of £2,502.80 for these high earners, with the top rate potentially rising to 47%.

Adam Cole, from wealth management firm Quilter, explains, “Fiscal drag is pushing more retirees into higher tax brackets, and the Budget might further intensify the strain on wealthy pensioners. While Labour pledged not to raise main income tax rates for working individuals, adjusting rates for top earners may be seen as a cleaner and more acceptable approach than numerous small tax changes.”

David Luxton, spokesperson for pensioner advocacy group Later Life Ambitions, criticized the proposals, stating, “Many pensioners live on fixed incomes and face growing expenses. Increasing taxes broadly on pensioners overlooks this reality and effectively penalizes people simply for aging. Pensioners have contributed to the economy throughout their lives; asking them to pay more—especially those already paying the highest rate—is unfair. Those who have saved responsibly should not be punished.”

The potential tax changes signal challenging times ahead for pensioners as the government seeks to balance fiscal pressures with fairness.