Millions of workers across the UK could soon see a significant dent in their pay packets due to a looming tax adjustment. Experts warn that changes to income tax and National Insurance thresholds may leave employees with less disposable income.
What's Changing?
The tax-free Personal Allowance – the amount you can earn before paying income tax – has been frozen at £12,570 since 2021. Meanwhile, National Insurance thresholds remain static while wages continue to rise. This phenomenon, known as 'fiscal drag', means more workers are being pulled into higher tax brackets.
Who Will Be Affected?
According to analysis:
- Over 4 million additional workers could be pushed into higher tax bands by 2028
- Basic rate taxpayers may see their bills increase by hundreds of pounds annually
- Middle-income earners face being pulled into the 40% tax bracket
Why Is This Happening?
The government introduced threshold freezes to help recoup pandemic spending, but with inflation remaining stubbornly high, the impact on household budgets is becoming increasingly severe. The Institute for Fiscal Studies estimates these stealth taxes could raise £52 billion for the Treasury by 2028.
What Can You Do?
Financial advisors recommend:
- Reviewing your tax code to ensure it's correct
- Considering salary sacrifice schemes for pensions or benefits
- Exploring tax-efficient savings options like ISAs
- Consulting a financial planner if you're nearing a threshold
With no end to the threshold freeze in sight, millions of UK workers may need to brace for tighter household budgets in the coming years.
