Chancellor Rachel Reeves could hit them from every angle. Pre-Budget speculation is now running at full tilt, so predicting her next move is a guessing game, but savers and pensioners are clearly at risk.
Last year, Reeves announced plans to apply inheritance tax (IHT) on unused direct contribution pension pots from 2027, and that raid is definitely going to happen. But it won’t be enough. Reeves is now said to be plotting to scrap the seven-year rule on IHT-free gifts, or extending it to 10 or 12 years.
That will make it ever harder for families to shield wealth from HMRC. There is also chatter about imposing lifetime limits on IHT-free gifts to loved ones.
Reeves could also attack pensions by slashing the 25% tax-free cash limit from £268,275 to just £100,000. All this speculation is causing panic, even if it never comes to pass.
Labour could also aim new taxes at homeowners could face higher taxes, such as a mansion tax or potential new council tax bands.
The real blockbuster is the rumoured plan to hike income tax by 2p on November 26. And it could be engineered in a way that deliberately targets pensioners.
Think tank the Resolution Foundation, whose former boss Torsten Bell is now writing the Budget, has suggested cutting income tax by 2p, then adding 2p to income tax.
This is a cunning move because pensioners don’t pay NI – but they do pay income tax and will be caught as a result.
Every year, more pensioners pay income tax, for two main reasons. First, the triple lock has steadily pushed up the state pension, meaning more pensioners now exceed the £12,570 personal allowance.
Second, the government has frozen tax thresholds. In 2010, around 4.5million pensioners paid income tax, mostly those still working or with generous private pensions. Today, that’s doubled to more than nine million, and it will only rise further.
More than a million pensioners also pay income tax on savings interest, due to the frozen personal savings allowance and higher interest rates.
For a pensioner with total income of £30,000, a 2p in the £1 income tax hike would cost an extra £350 a year.
Wealthier pensioners will be hit much harder. Around 904,000 pay the higher 40% rate, while 124,000 sit in the additional 45% bracket, earning £125,140 or more.
For additional rate taxpayers, a 2p increase would add £2,500 to their tax bill.
Yet Reeves and PM Keir Starmer may find it tempting. During the election, they pledged not to pile more taxes on “working people”.
By targeting pensioners instead, they can claim to have stuck to this. And yes, that’s totally twisting the truth, but that’s what Reeves and Starmer do.
Unlike inheritance tax, income tax is virtually impossible to avoid, making it an attractive way for the Chancellor to plug the government’s £50billion funding gap. Pensioners will know for sure on November 26.
