The number of pensioners paying an effective 60% income tax rate has more than doubled in just three years, as frozen tax thresholds drag tens of thousands of older savers into higher tax bands, new HM Revenue & Customs (HMRC) figures reveal.
Around 77,000 people aged 66 and over fell into the so-called “60% tax trap” in the 2023–24 tax year — up from 38,000 in 2021–22, according to data obtained by investment platform Interactive Investor through a freedom of information request.
The 60% marginal rate applies to anyone earning between £100,000 and £125,140 a year, where the personal tax-free allowance of £12,570 is gradually withdrawn. For every £2 earned over £100,000, £1 of the allowance is lost. The full allowance disappears once income reaches £125,140, creating an effective 60% rate when combined with the 40% higher-rate tax.
The threshold for losing the personal allowance has been frozen since 2010. Had it risen with inflation, it would now stand at around £155,000. Analysts say this long-term freeze, alongside wider “fiscal drag” from static tax bands, is drawing growing numbers of older workers and retirees into steep tax brackets.
Craig Rickman, personal finance editor at Interactive Investor, said the figures highlight “the punishing impact of the 60% tax trap on older workers and pensioners.”
“More people are working 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.”
The surge in retirees paying higher taxes also reflects a sharp increase in pension withdrawals. According to the Financial Conduct Authority, £70.9 billion was withdrawn from pensions accessed for the first time in 2024–25 — a 36% jump from the previous year.
Analysts link this rise to Chancellor Rachel Reeves’ plan to bring pensions within the inheritance tax net from April 2027. “Bringing pensions into inheritance tax increases incentives for wealthier pensioners to spend their money sooner,” said Tom Selby, director of public policy at AJ Bell. “It’s likely a contributing factor to more retirees being dragged into the 60% tax band.”
Tax thresholds have been frozen since 2021, meaning annual pay rises are pushing millions into higher tax brackets. The Office for Budget Responsibility estimates that by 2030, 4.2 million more people will pay income tax, and 3.5 million more will become higher or additional-rate taxpayers if the freezes continue.
The Institute for Fiscal Studies predicts the freezes will raise £40 billion annually by 2027–28 — roughly equivalent to a 4p rise in the basic rate of income tax. Under current plans, thresholds are due to rise again in 2028–29, but speculation is growing that Reeves may extend the freeze in her upcoming November 26 Budget.
For pensioners already caught in the 60% tax band, such a move would prolong one of Britain’s most punishing and politically sensitive tax burdens.
