The phrase ‘low-hanging fruit’ is a metaphor usually applied across a variety of business sectors to describe areas where a company may enjoy relatively easy pickings. Subsequently, profits accrue, often with relatively little effort, when companies target markets where demand for their products or services is greatest.
It follows that organisations taking advantage of the ultimate ‘easy sell’ can make substantial sums of money, at least until competitors start sniffing around with a view to enjoying some of the low-hanging fruit themselves.
I often think that our politicians, and the civil servants advising them, have genned-up on the theory and machinations of low-hanging fruit, tweaked it a little and applied it to compliant taxpayers, ie those who offer little in the way of resistance to tax rises or frozen tax allowances – tantamount to the same thing.
Few tax-paying groups are as compliant as pensioners. For nigh-on 15 years, the government has treated the over-65s as an almost magical, uncomplaining, source of revenue. Last month, analysis published by the Institute for Fiscal Studies (IFS) revealed that since 2010-11, the proportion of people aged 65 and above who are now liable to pay income tax has risen by more than one third, from 50% to 68%. Moreover, the Chancellor’s latest Budget speech, delivered on 6th March 2024, did not improve matters for older voters.
The mammoth tax grab began accelerating under a previous Chancellor, George Osborne, who, in 2012, dumped a century-old tax break, introduced by Winston Churchill, which allowed pensioners to start paying tax at a higher income level than those of working age. An estimated 4.4 million pensioners were made worse off by £279 a year.
Though there were letters of complaint and any number of irate callers to radio phone-in shows, I don’t recall pensioners taking to the streets, waving banners in protest, or defiantly gluing themselves to the outside lane of the M6. Confident there would be no large-scale, well-organised and coherent objections to his plans, the Chancellor collected £3.25 billion by scrapping a break known as the ‘granny tax’.
As an example of how to pluck £3.25 billion-worth of low-hanging fruit, this takes some beating, but pensioners continue to be an uncomplaining source of reliable cash for the Treasury. ‘But what of the financial buffer provided by the triple lock?’ you cry. To answer, let us consider the gradual erosion in value of this much-vaunted ‘safety net’.
The triple lock guarantees that the state pension will rise annually by whichever is the highest of wage growth, inflation or 2.5%. Accordingly, in April 2024, the new state pension will increase by 8.5%, edging it a smidgeon over £11,500.
This all sounds terrific until you take account of the personal allowance, the amount anyone can earn before they must pay income tax. Since 2021, it has remained frozen at £12,570 and, incredibly, is scheduled to stay stuck at that level until 2028. The effect of this seven-year freeze on personal allowances, will be to draw millions of pensioners, particularly those with modest incomes, into the income tax net.
It will be of little consolation to learn that an estimated 90% of pensioners who pay income tax do so at the basic rate of 20%. According to the IFS, a pensioner earning £25,000 in 2010-11 would have paid income tax of £2,093; in the 2024-25 tax year, that figure will ratchet up to £2,486, an increase of more than 18%. Again, the lack of protest against the government’s successful attempts to dig deeper into taxpayers’ pockets has been conspicuous by its absence.
But before your correspondent is arrested by the thought police for advocating open rebellion, let us instead consider ways in which pensioners, and soon-to-be-pensioners, can make the burgeoning tax burden less worrisome.
Fortunately, for homeowners aged 55 and over, there could be a ready-made solution, capable of contending with the constant shadow of potential Treasury interference in their once straight-forward tax affairs. It could help counter the long term impact of frozen tax thresholds which, as we have seen, are capable of dragging an increasing volume of retirees into the tax system.
By releasing a proportion of the often significant equity built up within their homes, older homeowners could find they have access to a substantial, tax-free cash lump sum.
The most popular method of releasing equity is to use a lifetime mortgage secured against the homeowner’s property.
Unlike a ‘regular’ mortgage, which most people use to buy their home, a lifetime mortgage features no end date. Instead, it runs for the duration of the homeowner’s life (or partner, whoever lives the longest), or until the last remaining partner has entered permanent, long-term care. At this point, the property is sold, and the proceeds used to pay off the initial lump sum and any accrued interest. The remaining balance will then be distributed in accordance with any Will made.
Crucially, as a lifetime mortgage requires no contractual monthly payments unless you want to make voluntary payments, those aged over 55 could be sitting on the perfect riposte to any future income tax squeeze. Furthermore, the money released can be used for anything the homeowner wishes, once any existing debt secured against the property is cleared. For most older homeowners, this means improving their quality of life with home renovations, enjoying vacations or reducing worry by giving their finances a timely boost.
A lifetime mortgage may affect the homeowner’s estate value and entitlement to means-tested benefits, which is why it is worth getting a personalised illustration from a qualified financial adviser in order that the risks and other characteristics of equity release are fully understood. Or you can use smartER™ to conduct your own equity release research and request a quote based on your personal circumstances.
In the meantime, remember that when it comes to generating tax revenues, governments are adept at spotting low-hanging fruit, recognising that some groups are an ‘easy touch’ who will pay up without any visible protest. This is why older homeowners must remain vigilant: an orchestrated tax squeeze remains a genuine threat to retirees.
Nevertheless, the often significant value accumulated in the homes of many people aged over 55 could provide the savings they need to enjoy retirement free from financial worry. For that reason alone, it could be worthwhile exploring whether a lifetime mortgage could help overcome financial hurdles that are, for millions of folks, an integral part of later life.
