High earners could face paying more than £7,000 in extra income tax if the Chancellor, in the upcoming Budget, extends the current freeze on tax thresholds until 2030, according to new analysis from Rathbones Group, one of the UK’s leading wealth managers.
The freeze on the personal allowance (£12,570) and income tax thresholds (£12,571, £50,271 and £125,140 for the basic, higher and additional rates) began in April 2022 and is set to end in April 2028. Combined with rising wages, the policy is dragging more people into higher tax bands – an effect known as fiscal drag.
If the freeze runs until April 2030, someone who earned £100,000 in 2022 could pay £7,077 more in tax than if thresholds had kept pace with inflation. The additional tax burden would be £5,635 for someone who was on £80,000, £4,632 for those who earned £50,000, and £926 for those on £35,000.
The figures assume wage growth in line with the Office for Budget Responsibility’s (OBR) data and forecasts until 2029, and 2% inflation in 2030. Thresholds are projected to follow OBR forecasts until 2027, with 2028 – 2030 rising only in line with inflation. Rates, thresholds and allowances based on ‘rest of UK’ tax rates (income tax bands are different in Scotland).
Ade Babatunde, Senior Financial Planning Director at Rathbones, said:
With the Chancellor searching for ways to plug the nation’s financial black hole, the freeze on income tax thresholds could be dragged out further. It’s taxation by stealth: the rates stay the same, but a bigger slice of your pay disappears into the taxman’s coffers.
And it’s not just income tax. Capital gains, dividend and inheritance tax thresholds are also frozen, quietly pulling more people into the net. Coupled with inflation – and with talk of a wealth tax – the rising tax burden has fuelled a surge in clients asking if they can do more to reduce their liability ahead of the Budget.
Households should prepare now. Maximising ISA and pension allowances, and increasing pension contributions, can help offset the impact. Professional financial advice can ensure more of your money works for you.
Rising tax burden from threshold freeze
Speculation about tax rises is mounting ahead of the Autumn Budget. The National Institute of Economic and Social Research has warned that Chancellor Rachel Reeves may have to increase taxes to meet her borrowing rules, with government finances on course to miss targets by £41.2bn.
Even if the freeze ends in April 2028, the extra tax burden would still be significant according to Rathbones’ calculations:
£100,000 earner (in 2022): £6,476
£80,000 earner (in 2022): £4,488
£50,000 earner (in 2022): £3,964
£35,000 earner (in 2022): £793
The current freeze on income tax thresholds is forecast to raise an additional £38bn a year in 2029/30* – equivalent to almost 67% of the defence budget for the 2024/25 tax year**.
| Salary in 2022 | Extra tax burden by end of 2025 | Extra tax burden by end of 2028 | Extra tax burden by end of 2028 |
| £35,000 | £599 | £793 | £926 |
| £50,000 | £2,894 | £3,964 | £4,632 |
| £80,000 | £2,995 | £4,488 | £5,635 |
| £100,000 | £5,343 | £6,476 | £7,077 |
Source: Rathbones Group. Assumes wage growth in line with the Office for Budget Responsibility’s data and forecasts until 2029, with 2030 based on the Bank of England’s 2% inflation target. Income tax thresholds are assumed to increase in line with OBR forecasts until 2027, with 2028–2030 rising only in line with the 2% target. ‘Extra tax burden’ is calculated by comparing tax liabilities under a frozen threshold policy with those under thresholds uprated annually with inflation.
*Source: OBR Economic and Fiscal outlook
** Spending plans set out in the 2024 Autumn Budget show that defence spending is expected to total £56.9 billion in 2024/25.
