What's Actually Changed
The rise isn't down to a new tax rule. It's down to something called fiscal drag, where tax thresholds are frozen while incomes keep rising, quietly pulling more people into higher tax bands each year. We've covered this pattern before in our piece on state pensioners facing a "stealth tax" as the personal allowance stays frozen while the triple lock keeps pushing pensions up.
The personal allowance (the amount you can earn before paying any income tax) has been frozen at £12,570. The higher-rate threshold, where you start paying 40%, has been frozen at £50,270. And the additional-rate threshold, where you start paying 45%, was cut from £150,000 to £125,140 from the 2023/24 tax year onwards.
Meanwhile, the State Pension and many private pensions have kept increasing. So even without a pay rise, more people are being pushed over these frozen lines every year, pensioners included. Our guide to the personal allowance for pensioners breaks down exactly how this threshold applies once you combine State Pension, workplace pensions, and savings.
To make matters more pressing, the Government has confirmed the freeze on these thresholds will continue until 2030. In other words, if your pension income is rising in line with inflation or the triple lock, you could find yourself paying higher-rate tax even if nothing else in your life has changed.
