There are no two ways about it, your biggest tax fear “is about to come true”, Hargreaves Lansdown’s head of personal finance Sarah Coles has warned.
To be more specific, income tax hikes are “nailed on” in the upcoming October Budget, stated Coles, despite Labour pledging to leave income tax untouched.
This is because the effect of fiscal drag “means that every inflation-linked pay rise will push more people into paying more tax, and more into paying higher rates”, Coles noted.
Thresholds have been frozen since April 2022, with the basic 20% rate starting at £12,571, the higher 40% rate starting at £50,271 and the additional 45% rate starting at £125,140
According to Coles, “By the time the freeze ends in 2028/29, there will be 3.7 million more taxpayers, 2.7 million more higher-rate taxpayers, and 600,000 more additional-rate taxpayers than if allowances and thresholds had been indexed to inflation and the additional rate threshold kept at £150,000”.
Income tax hikes were cited as the greatest fear among 2,000 respondents to a survey conducted by Hargreaves and Opinium.
A total of 15% of respondents cited income tax followed by higher council taxes (11%), a rise in VAT (8%), higher duty affecting drivers (8%) and losing inheritance tax allowances or exemptions (5%).
According to the poll, higher-rate taxpayers are more concerned about the removal of tax breaks on pension contributions and inheritance tax exemptions than basic-rate taxpayers, while basic-rate taxpayers are more concerned about council tax hikes and higher duty affecting drivers (this includes car tax and fuel duty).
Labour has pledged to leave income tax, national insurance, VAT and corporation tax unchanged, but has warned that the upcoming October Budget will be “painful” as Chancellor Rachel Reeves attempts to plug an alleged £22 billion “black hole” in public finances.
Goldman Sachs predicts Reeves to announce tax hikes of between £15 billion and £20 billion, largely from capital gains and inheritance tax hikes.