Everything to know about granny tax: Is it really unfair?


Many people dispute about the granny tax, where the current pensioners get much more from the state than they contribute towards the state. This may be unfair for the young people in their 20s. Due to granny tax, the disposable income of people aged above 60 years is more than those people who are in their twenties. 

Moreover, most of the pensioners get high final-salary pensions as well as regular holidays as compared to young people. This is why granny tax has provoked great outrage. People say that it is unfair for most of the middle-class pensioners. 

What is granny tax?

According to granny tax, the higher personal allowances are frozen and then scrapped for people, who are more than 65 years old. The freeze on the personal tax allowances of pensioners means that most of them will be paying double taxes on their income. The main question here is why retired people are given better income tax breaks as opposed to people who are still working and are young. 

The granny tax is so named, since it attacks the tax allowances according to the age of people. According to an analysis done by the Financial Times, it was found that adults in the present time, who are in their twenties, will not be richer than their parents. In fact, this would be the first generation with which this will happen. 

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If granny tax is followed, then there will be a society, where the retired and non-working people will earn more than the working people. And this is before we even add the principal unearned income, which is there in the houses of people who are above 60 years old. 

Due to this tax policy, the people who would be most affected would be those who are aged 65 years or more than that, as they will get a lower personal allowance. They will have to pay more every year in extra taxes. 

However, people who have already turned 65 years old will also be hit by this type of tax, since the age related allowance will get frozen. This means that they will not get any benefit from the yearly rises that had occurred previously. 

Who will not be affected by granny tax?

There are also some people who would not be affected with granny tax. This is because the age related allowance is lowered for retired or non-working people who have high incomes, which is more than £30,000 per year. 

These people will not have to suffer from granny tax, since they did not get the part of the allowance related to age. Moreover, pensioners who have incomes with Pension Credit and State Pension, which accounts for nearly half of all people with pensions, will also not get affected by this tax policy, as their earnings are very low for taxation. 

Image courtesy:The Telegraph
Image courtesy:The Telegraph

Thus, pensioners who have earnings below £30,000 will have to pay higher tax bills, due to such changes in taxes. Most of the pensioners do not like this move. Although, whether the extra tax burden is manageable or not depends on your personal circumstances, many people feel that it is an unfair move. 

In addition to this, last year there were also some changes made related to granny real estate. The surcharge of stamp duty land tax on purchase of extra residential properties was laid, which accounts to 3%. This legislation exempts subsidiary dwellings, like granny annexes. This also means that you may claim your overpaid stand duty land tax and can consider buying numerous properties in separate transactions.