Over-60s face mounting tax pressures as the Government announces new enforcement measures and prepares for new inheritance tax rules in 2027.
As part of the changes announced in the Spring Statement, HMRC is set to hire over 500 new officers in a tax clampdown on late payers.
The move comes as part of measures to close the £44billion tax gap, which has more than doubled over the past five years, according to Spring Statement documents.
The tax authority is also investing in new technology to aid automated recovery as it shifts towards a digital tax system. With over 1.1 million people filing their returns late this year, the crackdown could prove lucrative for the Treasury.
Faye Church, Chartered Senior Financial Planner at Rathbones, explained that while the Government aims to raise funds through a tax crackdown, it is the mass affluent who are most affected.
She said: “For the most part, however, it’s the mass affluent who pick up the bill and we’re already seeing a significant increase in people seeking tax and planning advice.”
Church continued: “The worry for the Government going forward is that the over 60s in particular are already more heavily taxed than almost any other segment, including many older people no longer working and reliant on their pensions, particularly with the change coming in April 2027.”
The move comes as part of measures to close the £44 billion tax gap
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Church warned that the situation will worsen with the upcoming April 2027 change, which will make pension pots subject to inheritance tax.
Many older people are now seeking professional tax advice in response.
This surge in financial planning comes as the Government tightens tax enforcement across the board, with the shift to ‘Making Tax Digital’ (MTD) in April 2025 introducing a stricter penalty system for late tax payments.
Under the current self-assessment system, penalties start at £100 for returns up to three months late, while late tax payments incur a five per cent fine after 30 days, with additional charges at six and twelve months.
The new MTD system will replace this with a two-tier penalty structure designed to punish late payers more severely.
HMRC hopes the tougher approach will improve compliance as more taxpayers join the digital system.
Under MTD, the penalties for late payment will be significantly steeper. Taxpayers will face a three per cent fine on outstanding tax when payment is 15 days overdue. An additional three per cent penalty will be applied if the tax remains unpaid after 30 days.
For those who delay beyond 31 days, a substantial 10 per cent annual charge will be added to the outstanding amount.
These escalating penalties represent a marked increase from the current system and are designed to encourage prompt payment as the digital tax regime expands.
The impact of these changes could be substantial for taxpayers. A self-employed person owing £25,000 in income tax would likely owe £26,913 after four months under the current system.
Under the new MTD rules, this could rise to over £28,000 – an increase in fines of around six per cent. The Treasury estimates these increased penalties could generate an additional £370million by 2030.
This represents a significant financial burden, particularly for those already struggling with tax compliance or facing financial difficulties.
Charlene Young, senior pensions and savings expert at AJ Bell said: “With taxpayers facing hours on hold to HMRC in recent years, or even being chucked off a waiting call, it’s fair to assume that the push to digital and increased fines with tighter timescales will be met with a degree of cynicism.”
Young added that closing the tax gap should be a priority,
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Young added that closing the tax gap should be a priority, but questioned the timing as small businesses prepare for “soaring tax and wage bills from April”.
The Government hopes these measures will raise significant sums through cracking down on tax evasion and avoidance.
There are also questions about how the fines will be enforced for the four million taxpayers with income below the £20,000 threshold.
HMRC plans to harness AI to aid with automated debt recovery as part of this digital transformation.