Retired households face 31% tax hit
Retired households pay out the equivalent of 31 per cent of their income in direct and indirect taxes a year, analysis produced by Key has revealed.
This is only 3.8 per cent less than the average working household, which pays 34.8 per cent of gross income in tax. Nevertheless, working households typically have more than double the gross average annual incomes of retired households at £50,353. This compares to income of £25,051 for a retired household.
The impact of direct and indirect tax is, perhaps unsurprisingly, felt the most by the least well-off retired households, Key’s analysis found. The lowest-earning 10 per cent have gross incomes of £8,725 and post-tax incomes of £4,527, equating to a total tax bill of 48 per cent.
Meanwhile, the highest-earning 10 per cent have gross incomes of £66,212 and post-tax incomes of £46,523, which equates to a total tax bill of 30 per cent.
Which tax hits the hardest?
Key revealed that VAT is the biggest tax bill for the average retired household, with the total paid each year amounting to £2,278 – narrowly ahead of the £2,050 paid annually on income tax. Council tax takes the third biggest slice, at an average £1,261 a year.
While average post-tax incomes for retired households have increased by £224 to £17,593 compared to the previous year, tax bills have increased by an average £513 on the previous year’s £7,458.
Will Hale, chief executive at Key, added: “Paying tax does not stop when you stop working and retired households have to keep on budgeting and planning ahead on how to pay income tax and council tax bills.
“The average bills from direct and indirect tax that retired households face take a substantial bite out of incomes underlining how important it is to consider all potential sources of income in retirement.”
Check out the table below to see how figures have changed over three years: