Five million pensioners hit by ‘outrageous £3bn stealth Granny Tax’ that will cost them £260 a year each
- Higher income tax allowance of five million elderly people to be phased out
- Move will reduce allowance from £10,500 to £9,205
- ‘Stealth tax’ is the Budget’s biggest money-spinner for the Treasury
Five million of the country’s pensioners will be hit by an ‘outrageous’ £3billion ‘Granny Tax’ hidden in today’s Budget.
The Chancellor announced that he will phase out the higher income tax allowance enjoyed by around half the country’s pensioners, already struggling with record-low interest rates on their savings.
From next year, people turning 65 will no longer qualify for the higher rate of £10,500-a-year.
Instead, they will qualify for just a standard income tax allowance which was raised today to £9,205.
The raid on Britain’s pensioners, worth £3.3bn over the next five years represents the biggest money spinner for the Treasury from the Budget.
Burden: Half the country’s pensioners will lose hundreds of pounds annually when their tax allowance is reduced (file picture)
Individuals affected will pay an extra £260-a-year extra in tax more than they would have done.
The backlash against Mr Osborne’s plans to penalise millions of pensioners was gaining force this afternoon with ‘Granny Tax’ currently the most trending subject in the world on Twitter.
Age charities united in opposition to the measure.
Dr Ros Altmann, Director-General, Saga said: ‘This is an outrageous assault on decent middle-class pensioners.
‘This Budget contains an enormous stealth tax for older people. Over the next five years, pensioners with an income of between £10,000 and £24,000 will be paying an extra £3 billion in tax while richer pensioners are left unaffected.
‘There is nothing in this Budget for savers, there is nothing to improve the annuity market, nothing to appease the damage of quantitative easing and nothing to support ISA changes and shelter older people’s money in cash. This Budget is terrible news for pensioners.
‘It is good to hear that we will be able to harness the power of pension funds to improve UK Infrastructure but in short, this Budget is another shocking example of the Government’s attack on poorer and older people. It is dramatically unfair.’
The Treasury have calculated the measures will raise £1billion a year by 2015 rising to £1.25 billion by 2016.
In total, the so-called ‘simplification’ measures will cost pensioners £3.3billion over the next five years.
Mr Osborne insisted that no pensioners will lose out in cash terms and that the move would help simplify the system.
Congratulations: Prime Minister David Cameron congratulates the Chancellor on his Budget in which he revealed the controversial tax raid on the elderly
However, Labour leader Ed Miliband said it amounted to a ‘hidden tax’ rise on millions of pensioners.
Chief Secretary to the Treasury Danny Alexander claimed the move would result in a ‘fairer’ and ‘simpler’ tax system.
He insisted: ‘There will be no cash losers.’
But Dot Gibson, general secretary of the National Pensioners’ Convention, said: ‘The decision to freeze the age related personal tax allowances effectively means around five million pensioner tax payers will no longer get additional reductions in their tax over the coming years – whilst those on the top rate of tax will see their bills reduced.
‘Many older people will feel they are being asked to forego their reduction in tax to help out the super rich. There’s no fairness in that.’
Mike Warburton of accountants Grant Thornton said: ‘The Chancellor is allowing age allowances to wither on the vine. He is effectively phasing them out but there is always a price to pay for simplicity.’
Mr Osborne said the move to scrap age-related personal allowances was the result of a recommendation from the Office for Tax Simplification which said 150,000 pensioners every year must fill out self-assessment tax returns due to the separate allowances.
Mr Osborne also confirmed that the government will introduce a single-tier state pension above the level of means-tests at an estimated £140.
The new system will be introduced ‘early in the next Parliament’ with final decisions to be made by the next spending review.
The new system will provide a flat level of support, which is greater than the amount people currently receive through the basic state pension and means-tested pension credit.
It will still be based on contributions and will not cost more than the current system. The reforms will not apply to today’s pensioners and are likely to take years to come into effect.
Four million pensioners will be £83 a year worse off after George Osborne took £3 billion out of income tax allowances for older people in his Budget.
At the moment, around five million people over the age of 65 pay income tax on their pensions and other earnings.
They are currently not taxed on at least the first £10,500 of their income. This will now be frozen in future years, saving the Treasury £360 million next year, £670 million in 2014, £1 billion in 2015 and £1.25 billion in 2016.
The changes will help fund an increase in the personal allowance for everyone under the age of 65 and a 5p cut in the rate of income tax for the highest earners
Critics said the changes would mean the elderly have less spending power.
Ed Miliband described it as a “tax rise for pensioners”.
Dot Gibson, General Secretary of the National Pensioners Convention, said: “The decision to freeze the age related personal tax allowances effectively means around five million pensioner tax payers will no longer get additional reductions in their tax over the coming years – whilst those on the top rate of tax will see their bills reduced.
“Many older people will feel they are being asked to forego their reduction in tax to help out the super rich. There’s no fairness in that.”
Danny Alexander, the Chief Secretary to the Treasury, backed up the Chancellor by saying there would be “no losers” but admitted the changes would “yield some revenue”.
He cast the changes as a “major simplification” meaning pensioners would in future not have to fill in self-assessment forms, because their income tax allowances will eventually be brought into line with personal allowances for all workers.
The blow to pensioners comes after it emerged this month that the cost of living for the UK’s 10.6 million pensioners has risen by a third since 2000.
Low interest rates and high inflation have hit retired people in the pockets. The average retired couple spends £17,922 a year to live, up from around £13,500 at the turn of the Millennium.