Average retired households paid £7,400 in tax last year

High tax burden
High tax burden

Retired households handed over £7,400 typically in tax last year - the equivalent of nearly a third (30%) of their annual income, according to analysis.

The total annual tax bill for the UK’s 7.1 million retired households was £52.7 billion from direct and indirect taxes, according to Prudential’s analysis of figures from the Office for National Statistics (ONS) for the 2015-16 tax year.

Prudential found the average retired household saw its tax bill rise by around £400 in the 12 months to April 2016, increasing the total tax coming from pensioners by around £1.7bn.

But average retired household incomes, including the state pension, private pensions, benefits and other earnings, also increased by around £1,200, to just over £25,000.

Retired households’ tax bills mount up from direct taxes such as income tax and council tax which came to an average of just over £3,050 in 2015-16, and indirect taxes such as VAT, insurance premium tax and vehicle excise duty which cost an average of £4,360 during the same period, Prudential said.

It found that the majority of the increase came from direct taxation, which increased by £300 on average from its 2014-15 level.

The average retired household paid around £1,970 in income tax in 2015-16 compared with just over £1,700 in the previous tax year.

Prudential’s analysis also showed that in 2015-16 pensioners paid a slightly lower proportion of their income in taxes than those who were still working.

The total tax take for retired households was around four percentage points lower than the 34% paid by the average working household.

The recently introduced pension freedoms give the over-55s a much greater choice over how they take their retirement cash.