Retirees, beware of the 31% tax hit to your income
Although this is slightly lower than the 35% tax bill paid by the average working household, the average income of a retired household is £25,051, less than half of the typical working household income of £50,353.
The analysis by equity release adviser Key found that the impact of direct and indirect tax is felt the most by the least well-off retired households. The lowest-earning 10% have gross incomes of £8,725 and post-tax incomes of £4,527 equating to a total tax bill of 48%.
Meanwhile, the highest-earning tenth of retired households have gross incomes of £66,212 and post-tax incomes of £46,523, which equates to a total tax bill of 30%.
VAT represents the biggest tax bill for the average retired household, with the total paid a year amounting to £2,278, according to Key’s analysis. This was narrowly ahead of the £2,050 they pay each year in income tax, while council tax takes the third biggest slice at an average £1,261 a year.
On a positive note, average post-tax incomes for retired households have increased by £224 to £17,593 compared to the previous tax year, Key’s analysis found. However, the tax bill had increased by £513 on the previous year’s £7,458.
Will Hale, chief executive at Key, said: “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.”