The number of pensioners paying a punishing 60 per cent income tax rate has more than doubled in just three years, as frozen tax thresholds drag tens of thousands more older savers into higher tax bands.
New figures from HM Revenue & Customs show that around 77,000 people aged 66 and over fell into the “60 per cent tax trap” in the last tax year — up from 38,000 in 2021–22.
The steep rate applies to anyone earning between £100,000 and £125,140 a year. Within this band, individuals lose 60p of every extra £1 earned because the personal tax-free allowance of £12,570 tapers away once income exceeds £100,000.
The threshold has been frozen since 2010, and if it had kept pace with inflation, it would now stand at about £155,000. Analysts say this freeze — along with the broader “fiscal drag” caused by static tax bands — has pushed growing numbers of workers and retirees into punitive tax brackets.
Craig Rickman, personal finance editor at Interactive Investor, which obtained the data through a freedom of information request, said the figures expose “the punishing impact of the 60 per cent tax trap on older workers and pensioners”.
“More people work well into their late sixties now,” he said. “But there’s a real risk that ultra-high tax rates could push experienced workers out of the labour market — just when the economy needs their skills most.”
Under the rules, for every £2 of income over £100,000, taxpayers lose £1 of their personal allowance. The allowance is fully withdrawn once earnings hit £125,140. Combined with the 40 per cent higher-rate tax, this creates an effective marginal rate of 60 per cent.
For example, someone earning £100,000 who receives a £10,000 pay rise would pay £4,000 in income tax on the raise — but would also lose £5,000 of their personal allowance, adding a further £2,000 to their tax bill. In total, they would pay £6,000 — 60 per cent — on that additional £10,000.
The surge in over-65s facing high tax bills also reflects the growing number of retirees drawing larger sums from their pension pots. Withdrawals have risen sharply since Chancellor Rachel Reeves announced plans to bring pensions within the inheritance tax net from April 2027.
The Financial Conduct Authority said £70.9 billion was withdrawn from pensions accessed for the first time in 2024–25 — up 36 per cent from the previous year.
Tom Selby, director of public policy at AJ Bell, said: “Bringing pensions into inheritance tax increases incentives for wealthier pensioners to spend their money sooner. It’s likely a contributing factor to more retirees being dragged into the 60 per cent tax band.”
Tax thresholds have not risen since 2021, meaning pay increases are pulling millions more taxpayers into higher bands each year. The Office for Budget Responsibility has warned that if the freezes continue, 4.2 million more people will pay income tax by 2030, and 3.5 million more will become higher or additional-rate taxpayers.
The freezes are also hugely lucrative for the Treasury. The Institute for Fiscal Studies estimates they will raise £40 billion a year by 2027–28 — almost equivalent to a 4p rise in the basic rate of income tax.
Under current policy, thresholds will start rising again in 2028–29, but speculation is mounting that Reeves could prolong the freeze as part of her search for new revenue ahead of the November 26 Budget.
For many pensioners, that would mean yet more years in one of Britain’s most punishing — and politically explosive — tax traps.
