Record 10.2 Million Over-65s Set to Pay UK Income Tax as Frozen Thresholds Bite

A record 10.2 million people aged 65 and over are expected to pay UK income tax during the 2026/27 tax year as frozen thresholds pull more pensioners into the tax system, according to new figures from HM Revenue & Customs (HMRC).

The projections show the number of older taxpayers has risen sharply despite no increase in income tax rates. Instead, a prolonged freeze in the Personal Allowance and higher-rate thresholds has meant rising State Pension payments and other retirement income are increasingly becoming taxable, a phenomenon widely known as fiscal drag.

Frozen Allowances Push More Pensioners Into Tax

HMRC projects that 10.2 million people aged 65 and over will pay income tax in 2026/27, including about 9.5 million people above State Pension age. The figures mark the highest number since comparable records began and represent an increase of around 700,000 compared with the previous tax year.

The increase comes as the Personal Allowance remains frozen at £12,570, a level first introduced in the 2021/22 tax year and scheduled to remain unchanged until the end of the decade.

Income tax rates have not increased during that period. Instead, higher pension payments, wage growth and private retirement income have pushed more people above the tax-free allowance.

Overall Taxpayer Numbers Reach New High

HMRC estimates that 40.8 million people will pay income tax during the 2026/27 tax year, around one million more than a year earlier.

The number of higher-rate taxpayers is projected to reach 7.7 million. HMRC's statistics indicate that figure has increased by more than one million over the past two years as earnings continue to rise while tax thresholds remain fixed.

The department's projections are based on data from the Survey of Personal Incomes together with economic forecasts covering employment, earnings and pension income.

State Pension Growth Meets Frozen Thresholds

The State Pension has continued to increase under the triple lock, which links annual rises to the highest of inflation, average earnings growth or 2.5%.

For many pensioners, those increases have narrowed or eliminated the gap between annual retirement income and the Personal Allowance.

People receiving occupational pensions or other taxable income alongside the State Pension have also become more likely to exceed the tax-free threshold.

HMRC's figures show the increase reflects changing incomes rather than changes to tax legislation.

Fiscal Drag Continues to Expand the Tax Base

Economists use the term 'fiscal drag' to describe the effect of frozen tax thresholds drawing more people into paying tax or moving them into higher tax bands as incomes rise over time.

The Government announced in previous fiscal statements that the main income tax thresholds would remain frozen until the 2030/31 tax year.

Unless those thresholds change, future increases in wages and pensions are expected to continue expanding the number of income taxpayers.

Former pensions minister Sir Steve Webb, now a partner at pension consultancy LCP, said in commentary accompanying the figures that the growing number of pensioners paying income tax reflected 'the combined effect of rising pensions and frozen tax thresholds'.

HMRC did not announce any changes to income tax policy alongside the publication of the latest projections. The figures form part of the department's annual Income Tax Liabilities Statistics covering the 2023/24 to 2026/27 tax years.