‘Granny tax’ set to hurt 400k Scot pensioners

Mr McClymont, who is also MP for Cumbernauld, Kilsyth and Kirkintilloch East, said chancellor George Osborne’s decision to implement the so-called ‘granny tax’ will cause serious financial issues to pensioners in Scotland as well as across the UK.

During Question Time in the House of Commons, Mr McClymont asked how many pensioners in Scotland would be affected by the decision, and was told this would be 367,000 north of the border alone.

Michael Connarty, Labour MP for Linlithgow and East Falkirk, said: “This is an attack on middle-class people.

“There is also an attack on single people, who will lose income through being hit by the bedroom tax. People cannot be elderly and they cannot be single - and it would appear they cannot be hungry either, as there is a tax on fish and chips.”

Under the proposals, the age-related allowances for pensioners will be frozen, starting in April 2013.

Given inflation of 3.5 per cent and possibly rising, this could see more than 4m pensioners across the UK having to pay up to £3.3bn more in tax.

Ros Altmann, director general of Saga, said: “We understand the merits of reforming the complicated age-related tax allowance but the way this has been done has ended up unfairly hitting a particular group of over-65s - namely those who have done some saving but are not very well off.

“This is the very group that has already been hurt by monetary policy and is now hit by new fiscal policy penalties.

“We are deeply concerned at the government’s decision to abolish the age-related allowances, without any acknow-ledgement of the losses of expected income this entails.”

Danny Cox, head of advice at Bristol-based Hargreaves Lansdown, said: “The granny tax seems to be a complete PR disaster for the government, especially since it isn’t a tax at all. It’s the removal of an allowance.

“For the 75s and over the tax allowance is £10,660.

“However, once taxable income exceeds £25,400, for every extra £2 income you lose £1 of the age-related allowance until at an income of £30,190 (age 65 to 74) only the personal allowance of £8105 remains.

“Investors caught in this so-called “age allowance trap” of income in this range suffer tax at an effective rate of 30 per cent.

“To reduce the effect of the age allowance trap, we would recommend clients minimise taxable income by using Isas and, for couples, invest in the name of the person who pays the lowest rate of tax: standard, financial planning that applies whether the age allowance was going or not.”