Retired households pay almost a third of income in taxes
Retired households pay out the equivalent of 31% of their income in direct and indirect taxes a year, accroding to analysis from Key.
The equity release adviser found that the individual average tax bill for retirees is nearly £8,000 a year, with the UK’s 7.1 million retired households contributing £59.23 billion to the Government from direct and indirect taxes.
What do they earn?
The average gross annual income for retired households is £25,051 and their post-tax income is £17,593 amounting to an annual tax bill of £7,971 – the equivalent of 31% of gross income.
This is a slightly lower rate than the average working household, which pays 34.8% of gross income in tax. However working households have more than double the gross average annual incomes of retired households at £50,353.
Lower income, higher tax
The impact of direct and indirect tax is felt the most by the least well-off retired households, said Key.
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%.
However, 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 only 30%.
What tax do they pay?
The biggest tax bill for the average retired household is VAT, with the total paid a year amounting to £2,278, ahead of the £2,050 they pay each year in income tax. Council tax takes the third biggest slice at an average £1,261 a year.
Average post-tax incomes for retired households have increased by £224 on the last year’s, but the tax bill has increased by £513.
Will Hale CEO 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.
“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.
“Property wealth is making a major contribution to retirement standards of living with tens of thousands a year using money tied up in their homes to transform their finances. Good specialist advice is key to ensuring that older homeowners receive the most benefit from their property wealth.”