The term ‘stealth tax’ refers to the Government finding ways to increase its revenue from a particular tax without increasing the headline rates for that tax.
Usually, it involves freezing, reducing or abolishing tax-free allowances.
The Personal Allowance (the amount of income a person can get before they pay income tax at the basic rate of 20%) has been frozen at £12,570 since the tax year 2022/23. In earlier years, allowances had increased in line with inflation.
The freeze means that as someone’s income grows, a greater proportion becomes taxable than would previously have been the case. For those earning more, the freeze means that salary increases might push them into the higher rate (40% over £37,700) or additional rate (45% over £125,140) tax bands.
In previous years, the additional rate band had applied only to those earning over £150,000.
The Personal Allowance now decreases by £1 for every £2 of income above £100,000, disappearing entirely when income reaches £125,140.
Married Couples Allowance was removed from tax year 2024/25, except for cases involving a very elderly partner.
Those liable to Capital Gains Tax have seen their annual tax-free allowance fall from £12,300 in 2022/23, where it had been frozen for three years, to £3,000 in 2024/25.
The Office of Budget Responsibility estimates that freezing income tax and National Insurance Contribution thresholds will raise additional tax revenue of £26.7 billion in the current tax year.
Hartey Wealth Management offers tax planning in Cheshire and Shropshire. We would be happy to advise you on how to make tax efficient use of your income in these challenging times.
