Personal Allowance Freeze Pushes 10 Million Over-65s Into Tax as Higher-Rate Threshold Stays Flat

HM Revenue and Customs projects that 10.2 million people aged 65 and over will pay income tax in the 2026/27 tax year, as frozen thresholds collide with rising pension income. The total is up from about 9.57 million in 2025/26.

The tax-free personal allowance has remained at £12,570 since April 2021. Rachel Reeves extended the freeze in the November 2025 Budget to April 2031.

The increase has pushed the number of older taxpayers above 10 million for the first time. HMRC estimates that 9.08 million of them will be above state pension age.

More people are being pulled into tax. The freeze leaves the threshold unchanged while state pensions and other taxable income rise.

Sir Steve Webb, a partner at Lane Clark & Peacock and a former Pensions Minister, said the number of pensioners paying tax would continue climbing.

“The surge in older people paying income tax is continuing, with record numbers of taxpaying pensioners in 2026/27. The recent extension of the freeze in personal allowances, combined with the continued generous indexation of the state pension means that even more people in retirement can expect to become taxpayers for the first time in the coming years.”

Webb made the comments on July 15, 2026, after the HMRC figures were released.

Laura Suter, director of personal finance at AJ Bell, said almost a quarter of all taxpayers could be over state pension age by the end of the tax year. She said the frozen allowance and increases under the triple lock were bringing more people close to the tax-free limit through pension income alone.

The triple lock raises the State Pension each year by the highest of 2.5%, inflation or average earnings. That annual increase can lift pension income above a threshold that has not moved since 2021.

The freeze has added more than 3 million older taxpayers

LCP said the number of people over 65 paying income tax has increased by more than 3 million since the allowance was frozen in 2021/22.

The figure stood at 7.1 million in 2021/22. It rose to 8.16 million in 2023/24 and is projected to reach 10.2 million in 2026/27.

More than 7 in 10, or 70%, of people receiving the State Pension are now income taxpayers. Some have state pension income combined with a small private or workplace pension. Others may continue working or have additional taxable income.

Sally Tsoukaris, general secretary of the Civil Service Pensioners’ Alliance, said the figures reflected concerns about people living on fixed incomes.

“These figures underline what we have been warning for some time. Frozen tax thresholds are having a direct and growing impact on pensioners, many of whom rely on fixed and modest incomes. It is not acceptable that people who have spent a lifetime [contributing are dragged into tax on modest incomes].”

The policy began under former Chancellor Rishi Sunak in 2021, when the government froze tax thresholds as it sought to repair public finances after the pandemic. The Labour government later extended the measure by three years in November 2025.

Rachel Reeves confirmed the extension in the 2025 Autumn Budget. Holding thresholds below rising earnings and pension income increases Treasury receipts through fiscal drag.

The standard tax bands remain unchanged

The allowance remains £12,570 for 2026/27. The higher-rate threshold remains £50,270.

Those figures apply even as pension payments and other incomes increase. A person whose income was previously below the tax-free limit can therefore become liable without receiving a higher tax rate or a change in their income source.

The effect can appear through deductions from private pension payments. Some people may also encounter HMRC’s automated P800 calculations or need to use the Self-Assessment system for the first time.

Dennis Reed, director of Silver Voices, argued that most retired people could eventually pay tax on what are often modest retirement incomes. The group has criticised the freeze as a stealth tax burden.

The Office for Budget Responsibility said in its July 2026 Fiscal Risks and Sustainability report that raising revenue through frozen thresholds creates worsening trade-offs for labour supply and household disposable income.

The full new state pension is expected to cross the limit in 2027

By April 2027, the full rate of the new state pension is projected to exceed £12,570 for the first time. That could make people whose only income is the full pension liable for income tax.

The government announced a special scheme in the 2025 Autumn Budget to prevent that outcome for people with no other income. The mechanism had not been detailed by July 2026.

The approaching change has prompted calls for a higher allowance for older people. A public petition seeking to double the pensioners’ allowance passed 119,000 signatures and triggered a House of Commons debate in June 2026.

The issue reaches beyond people receiving only the State Pension. A modest private pension, workplace pension or earnings can push total income over the frozen limit, while people already paying tax may see more of their income exposed as payments rise.

Tax bills can arrive through pension deductions or HMRC calculations

A newly taxable pensioner may not receive a separate bill. HMRC can adjust tax codes so that deductions are taken from private pension payments, while P800 calculations can identify underpayments or refunds.

Some people entering the system for the first time may need to deal with Self-Assessment. The change can therefore affect both the amount paid and the way a person manages their tax affairs.

Suter said the pension increase was bringing people “near their tax-free limit just from their state pension income alone.” Webb said the extension of the freeze would bring more retirees into tax in coming years.

The figures released on July 15 and 16, 2026, show the immediate scale of the shift. The April 2031 end date leaves the threshold frozen for several more tax years, while the 2027 pension milestone is approaching.

The proposed protective scheme will determine whether people dependent solely on the full pension avoid tax once it exceeds the limit. Its operating details remain to be set out.