UK pensioners face rising tax rates and HMRC refunds

Data indicates a significant increase in the number of pensioners paying higher-rate income tax in the United Kingdom. For the 2026 to 2027 tax year, approximately 1,092,000 pensioners are expected to be taxed at 40% or 45%, more than doubling the 494,000 recorded in the 2021 to 2022 period. This shift is attributed to fiscal drag, as tax thresholds such as the £12,570 Personal Allowance and the £50,270 higher rate threshold remain frozen while pension incomes rise with inflation.

Separately, HM Revenue and Customs (HMRC) is set to issue tax rebates to approximately 3.2 million retirees following a miscalculation in how state pension income was taxed. The error, which resulted in some individuals being overcharged for over 15 years, stems from HMRC taxing 52 weeks at an elevated rate rather than applying the correct split between previous and current year rates. These refunds, totaling an estimated £19 million, will be backdated to the 2020-21 tax year. HMRC has stated that individuals seeking refunds for the period between 2010 and 2020 must provide their own evidence for case-by-case reviews.