New research has established that retired households pay out the equivalent of 31% of their income in direct and indirect taxes a year.
New analysis from independent equity release adviser Key has found their individual average tax bill amounts to nearly £8,000 a year with the UK’s 7.1 million retired households contributing £59.232 billion to the government from direct and indirect taxes.
Key’s analysis of the latest government data shows 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.
It is a slightly lower rate than the average working household – they pay 34.8% of their gross incomes in tax. However working households have more than double the gross average annual incomes of retired households at £50,353.
The impact of direct and indirect tax is felt the most by the least well-off retired households, Key’s analysis found. 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%.
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 is the biggest tax bill for the average retired household with the total paid a year amounting to £2,278 narrowly 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 previous year’s, Key’s analysis found, £17,593 but the tax bill has increased by £513 on the previous year’s £7,458.
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.”
