Amidst heightened anticipation for Chancellor Jeremy Hunt’s Budget, where he is expected to slash National Insurance by 2p, Money Mail’s calculations reveal that despite the promised relief, households might still face a substantial increase in their tax bills.
Stealth Taxes at Work: Frozen Thresholds Result in Substantial Tax Hikes
Calculations by investment platform Interactive Investor, showcased by Money Mail, indicate that frozen thresholds across various tax categories are causing households to pay an additional £2,056 on average in taxes this year.
The impact is particularly severe for those earning £60,000, who find themselves over £6,100 poorer.
Long-Term Burden: Government’s Stealth Tax Grab Targeting Families Until 2028
As Chancellor Hunt grapples with promises to alleviate tax burdens, the deep freeze on thresholds is set to continue until 2028.
This includes freezing the personal income tax allowance at £12,570, pushing incomes into higher tax bands through fiscal drag.
Frozen Income Tax Thresholds: A Ruthlessly Efficient Tax Burden
The freeze on income tax thresholds, including the personal allowance, leaves workers earning between £20,000 and £50,270 paying an additional £541 in income tax and £92 in National Insurance.
Interactive Investor’s Alice Guy emphasizes the gradual and often unnoticed increase in the tax burden due to frozen thresholds.
Savers Beware: Rising Interest Rates Bring Increased Taxation on Savings
With interest rates on the rise, savers are set to pay £6.6 billion in tax this year, a drastic increase from two years ago.
Basic-rate taxpayers now pay £200 in tax on £2,000 interest, while higher-rate taxpayers face even higher tax bills.
Dividend Cuts and Capital Gains Tax: Additional Challenges for Investors
Investors holding dividend-paying stocks or funds face rising charges as the annual dividend allowance is halved to £500.
Similarly, the annual capital gains tax exemption is set to halve from £6,000 to £3,000 from April, exposing those making profits on asset sales to increased tax liabilities.
Child Benefit Taper and Frozen Thresholds: Families Hit by Stealth Taxes
Families, particularly working parents, are grappling with stealth taxes, including the frozen threshold for child benefit taper.
The frozen threshold since 2013 has dragged 600,000 families into higher tax rates, leading to marginal deduction rates of 55% to 71% for households earning between £50,270 and £60,000.
Budget Day Realities: Jeremy Hunt’s Tax Cut vs. Stealth Tax Challenges
While Jeremy Hunt’s expected tax cuts offer a glimmer of relief, the stark reality remains that households are ensnared by ongoing stealth taxes, and the Chancellor’s promises may not shield them from a continuous rise in tax bills.
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