In the 2023-24 tax year, 1.32 million people were sent the dreaded brown envelopes
HMRC is tightening its grip on pensioners and savers, with more than 1.32 million people hit with unexpected end-of-year demands from HMRC. New data reveals a near doubling of people receiving dreaded simple assessment letters in just two years, as the state pension climbs while the £12,570 tax-free personal allowance remains static.
In the 2023-24 tax year, a staggering 1.32 million people were hit with the feared brown envelopes demanding income tax payment, a leap from 675,000 in 2021-22, according to figures obtained from HMRC under freedom of information laws.
This surge has been pinned on a stealth tax effect triggered by the tax threshold freeze, first rolled out by the Tories under Rishi Sunak’s chancellorship, clashing with rising retirement incomes.
The Conservative-imposed freeze on tax thresholds kicked off in 2021-22 and was extended through to 2028, with Rachel Reeves tacking on an additional three years. Simple assessments are dished out when tax can’t be automatically collected via PAYE. They primarily impact pensioners, but also savers whose interest tips over the £1,000 personal savings allowance.
While many bills are relatively small, the scale of the issue is ballooning rapidly. HMRC data shows nearly 25% of demands in 2023-24 were for less than £100, while half were for under £300. However, campaigners warn that even these modest sums can shock pensioners who thought they were safely beneath the tax line.
The full new state pension is set to jump to £12,548 a year this April thanks to the triple lock, which guarantees annual increases in line with the highest of inflation, earnings growth or 2.5%.
This leaves it just £22 shy of the frozen personal allowance of £12,570, which has remained stuck at the same level since April 2021 and won’t budge until at least 2031. Experts predict the state pension will breach the allowance by April 2027, dragging millions of pensioners into paying income tax for the first time.
Out of the UK’s roughly 13 million state pensioners, around 9 million receive the older, pre-2016 pension. This can be significantly higher than the new system because it includes earnings-related top-ups from earlier schemes and bonuses for deferring retirement – often enough to trigger a tax bill.
Former Lib-Dem pensions minister Steve Webb, now a partner at consultancy LCP, warned: “The continued freezing of the income tax personal allowance means that the numbers getting unwelcome end-of-year tax demands have soared.”
He added: “Many of these people will be pensioners whose only income is the state pension, and they now get an annual tax demand, with the amounts growing each year.”
The ex-minister didn’t hold back, stating: “Although the government has indicated it may address this issue for a subset of pensioners from 2027, a much wider-ranging solution is needed.”
LCP forecasts the number of people receiving simple assessments will climb beyond 2 million once figures for 2024-25 are published. In the previous autumn’s Budget, Chancellor Rachel Reeves announced that from April 2027, pensioners whose sole income is the state pension will be exempt from paying income tax.
However, the government has yet to provide a detailed plan on how this policy will be implemented. HMRC has passed the buck on this issue, stating it’s a matter for ministers as it stems from government decisions on tax thresholds.
