A record 10 million people aged over 65 will pay income tax this year, according to new data released by HM Revenue & Customs (HMRC), as the continued freeze on tax thresholds brings more people into the tax system.
The data shows that 40.8 million people will pay income tax in the 2026/27 financial year, an increase of one million from the previous year.
Of that figure, 10.2 million taxpayers will be aged over 65, up by 700,000 from the previous year. Around 9.5 million are of state pension age, currently 66 and gradually rising to 67, meaning seven in ten pensioners now pay income tax.
The number of over-65s paying income tax has increased by nearly three million since 2022, when the previous Conservative government introduced a freeze on income tax thresholds.
Chancellor Rachel Reeves extended the freeze on income tax thresholds from 2028 to 2031 in last year’s Budget, prompting debate over whether the government had effectively increased personal taxes by bringing more people into the tax system through “fiscal drag.”
The tax-free personal allowance remains at £12,570, while the higher and additional rate thresholds have also remained unchanged.
Economists say the freeze has created “fiscal drag,” where rising wages push more people into paying income tax or into higher tax bands even though tax thresholds remain fixed. According to the Office for Budget Responsibility (OBR), the measure is expected to generate £8 billion for the Treasury in the 2029/30 financial year.
Isaac Delestre, Senior Research Economist at the Institute for Fiscal Studies, said the policy has resulted in more low-income earners, including pensioners with modest private pensions, minimum wage workers and those receiving universal credit, becoming liable to pay income tax or moving into higher tax brackets.
Under current rules, individuals earning more than £12,570 pay income tax on earnings above that amount, starting at 20 percent, rising to 40 percent on income above £50,271 and 45 percent on income above £125,140.
