Conservatives sound alarm over Labour’s £500 Retirement Tax bombshell
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Today [Thursday 31st July 2025] the Conservatives are sounding the
alarm over Labour's Retirement Tax – which is now just 614 days
away from coming into effect. With Rachel Reeves widely
expended to extend the income tax threshold freeze, and as the
triple lock ensures that the new state pension continues to
increase by at least 2.5%, the new state pension will breach the
personal allowance threshold for the first time in history from 6th
April 2027. This...Request free
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Today [Thursday 31st July 2025] the Conservatives are sounding the alarm over Labour's Retirement Tax – which is now just 614 days away from coming into effect. With Rachel Reeves widely expended to extend the income tax threshold freeze, and as the triple lock ensures that the new state pension continues to increase by at least 2.5%, the new state pension will breach the personal allowance threshold for the first time in history from 6th April 2027. This means many pensioners would see the basic rate of income tax (20%) applied to their pensions – with pensioners potentially paying up to £500 a year in tax 2034-35 if the threshold remains frozen each year, equivalent to a staggering one third of a monthly new state pension payment. And if inflation continues at the higher rate seen under this government, the bill could be up to £530 a year by 2034-35. Fears of this Retirement Tax are also growing after Keir Starmer refused to rule out freezing the thresholds further at a recent PMQs, despite making promises on other tax measures in the same session. This tax is also one that the Conservatives repeatedly warned about during the 2024 General Election campaign. Without action from the government the Retirement Tax is set to be yet another squeeze faced by pensioners under this Labour government, with inflation pushing up the cost of living, rising energy bills, and the debacle of their cruel cuts to Winter Fuel Payments last year. Sir Mel Stride MP, Shadow Chancellor, said: “For the first time, millions of pensioners are set to pay income tax on their state pension - and Labour is silent. “Their Retirement Tax plans are the latest shameful economic attack on our country's elderly. Pensioners who have worked hard all their lives are being taxed simply for playing by the rules. “Labour sees pensioners not as people to protect, but as a source of revenue. We Conservatives will keep fighting them until they do what is right.” Alex Burghart MP, Shadow Chancellor Duchy of Lancaster, said: “This is just the latest attack by the Labour government on pensioners. “Not content with punishing them with rising energy bills, ballooning cost of living and the cruel cuts they made to Winter Fuel Payments, Labour is now preparing to tax their hard-earned state pensions. “The Conservatives have always stood up for pensioners, which is why we are sounding the alarm. Labour must now confirm to the country that they will not extend the freeze on tax thresholds.” ENDS Notes to Editors
Labour are dragging pensioners into income tax for the first time:
i.Based on the new state pension increasing by 4.09 per cent 2024-25 to 2025-26 and 2.5 per cent thereafter as the minimum possible increase under the triple lock (DWP, Benefit and pension rates 2025 to 2026, 21 November 2024, link; DWP, Press Release, 6 April 2025, link). ii.Calculated by multiplying the weekly new state pension by 52. iii.The personal allowance frozen until 2027-28 as per Autumn Budget 2024, then increasing by inflation of 2 per cent as per the Bank of England target (HMT, Autumn Budget 2024, 30 October 2024, link). iv.The annual amount subject to income tax, calculated by subtracting the personal allowance from the new state pension. v.The total amount of income for a state pensioner to 2034-35 that is subject to income tax. vi.The annual Retirement Tax calculated by applying the 20 per cent basic income tax rate to taxable income (GOV.UK, Income Tax rates and personal allowance, accessed 25 July 2025, link). vii.The cumulative Retirement Tax calculated adding the annual Retirement Tax amount together. If Labour keep income tax thresholds frozen, pensioners will be on the hook for thousands in income tax by 2035:
i.Based on the new state pension increasing by 4.09 per cent 2024-25 to 2025-26 and 2.5 per cent thereafter as the minimum possible increase under the triple lock (DWP, Benefit and pension rates 2025 to 2026, 21 November 2024, link; DWP, Press Release, 6 April 2025, link). ii.Calculated by multiplying the weekly new state pension by 52. iii.A frozen personal allowance, as the Prime Minister has refused to rule out (Hansard, Vol 770 Col 938, 9 July 2025, link). iv.The annual amount subject to income tax, calculated by subtracting the personal allowance from the new state pension. v.The total amount of income for a state pensioner to 2034-35 that is subject to income tax. vi.The annual Retirement Tax calculated by applying the 20 per cent basic income tax rate to taxable income (GOV.UK, Income Tax rates and personal allowance, accessed 25 July 2025, link). vii.The cumulative Retirement Tax calculated adding the annual Retirement Tax amount together. If inflation continues as it has under Labour, pensioners pay £500 in income tax a year by 2035:
i.Based on the new state pension increasing by 4.09 per cent 2024-25 to 2025-26 and 2.7 per cent thereafter based upon the current average rate of CPI inflation under Labour (DWP, Benefit and pension rates 2025 to 2026, 21 November 2024, link; ONS, CPI Annual Rate, 16 July 2025, link). ii.Calculated by multiplying the weekly state pension by 52. iii.A frozen personal allowance, as the Prime Minister has refused to rule out (Hansard, Vol 770 Col 938, 9 July 2025, link). iv.The annual amount subject to income tax, calculated by subtracting the personal allowance from the new state pension. v.The total amount of income for a new state pensioner to 2034-35 that is subject to income tax. vi.The annual Retirement Tax calculated by applying the 20 per cent basic income tax rate to taxable income (GOV.UK, Income Tax rates and personal allowance, accessed 25 July 2025, link). vii.The cumulative Retirement Tax calculated adding the annual Retirement Tax amount together. |
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