MILLIONS of people could be £2,500 worse off under government plans set to be unveiled in the autumn statement.
Chancellor Jeremy Hunt is considering extending a freeze on income tax thresholds until 2028 – dragging millions more into a higher rate of tax.
That is because inflation and rising wages will mean more workers hit the thresholds, even though they are no better off in real terms.
Thresholds would usually be tweaked to take both of those things into account.
The freeze was meant to come to an end in 2026.
By extending it, Brits earning the average UK salary of £33,000, could end up paying £2,557 more in tax overall over the next six years, according to AJ Bell.
The basic rate of income tax currently kicks in on earnings over £12,571, and the higher rate of 40 per cent at £50,271.
This sneaky stealth tax is expected to bring in £30billion a year by 2026.
A stealth tax is a form a tax collected in a way that isn’t obvious – and you might not even notice it.
While the government doesn’t change the headline rate, you end up paying more money.
How will the change affect me?
Put simply, inflation and pay increases will mean more people being dragged into higher bands.
Laura Suter, head of personal finance at AJ Bell, said the move means that rather than rising with inflation, the point at which you start paying tax – and the point when the higher rate kicks in – will be frozen.
The UK’s rate of inflation is currently at a 41-year high of 11.1%, while average total pay, including bonuses, increased by 6% from July to September.
This essentially means that with wages steadily climbing, it means millions more people will become higher rate taxpayers and see a portion of their pay disappear.
Laura said: “The squeezed middle will once again be hit the hardest if the government’s plans to extend the tax threshold freeze come to pass.
“The move means that rather than rising with currently high inflation, the point at which you start paying tax, and at which the higher rate tax kicks in, will be stuck at their current levels until 2028.”
“With wages steadily climbing, it means millions more people will become higher-rate taxpayers and see a larger chunk of their earnings hit with basic rate tax.”
The latest government figures show there is already expected to be a 50% increase in the number of additional rate taxpayers this year.
Laura says extending the freeze from the current 2026 to 2028 will only fuel these numbers.
Someone with the average UK salary of £33,000 will be paying almost £2,600 more income tax due to the freeze – a 10% increase.
Those earning £50,000, and so hovering just under the current higher-rate threshold, will be hit the hardest.
It is estimated that they will be paying £6,570 more in income tax over the entire period of the tax freeze.
That represents a 17% increase in their income tax bill over that period.
The Chancellor is also considering a tax raid on the rich that would see tens of thousands of extra high earners slapped with the top rate.
The £150,000 threshold at which the additional rate of income tax kicks in could be lowered and that rate of 45p in the pound even raised.
Among the other announcements expected tomorrow, PM Rishi Sunak has hinted at keeping the pensions triple lock.
And the Chancellor is expected to uprate benefits in line with inflation next April.
/ 1 hour ago
EXPERTS warn that Covid-19 and flu infections could rise again this winter – creating...
/ 1 hour ago
A SLEEPY coastal town in the southeast of England has been crowned the best...
/ 1 hour ago
HOME-MADE Christmas cards are fun and cheap to create and a joy to get....