Minimum wage workers lose more than £500 a year due to freeze tax thresholdsanalysis of figures to I watch.

Rachel Reeves announced in the Budget that she was unfreezing the income tax and national insurance thresholds – the point at which income triggers different amounts of tax: basic, higher or additional. However, this will not change until April 2028.

Tax thresholds were frozen by the Tories in 2021. By keeping in place a Tory policy that Reeves described as “picking workers’ pockets” until 2028, it means workers will pay tax on an extra £2,624 per year. year, compared to the increase in thresholds. with the inflation rate, analysis for I watch.

This leaves all workers earning between £12,571 and £125,140 around £524 worse off each year, as the ‘stealth tax’ of freezing thresholds means more of their income is taxed.

Reeves explained that although extending the freeze until 2030 would raise “billions of pounds” and help raise money to fund public services, she had decided not to do so because it would “hurt workers” and would “take more money off their pay slips”, suggesting she would consider a prolonged freeze on Labor’s manifesto pledge not to raise taxes on “working people”.

Instead, the Chancellor chose to raise £40 billion in extra taxes by increasing national insurance contributions (NIC) for employers, despite warnings it would amount to a tax on employment, while increasing capital gains tax, among other measures.

By freezing tax thresholds – that is, not increasing them in line with inflation – voters pay significantly more in taxes.

The UK has recently experienced very high inflation, with average wages rising, pushing more people into higher tax brackets.

As a result, someone working 40 hours a week on a minimum wage of £12.21 an hour, with no pension contributions, will pay £510.80 more a year, according to leading accountancy firm Blick Rothenberg.

He calculated how much the thresholds would be today if they had increased in line with Consumer Price Index (CPI) inflation.

There are also a number of other financial measures that have not been adjusted in recent years, including how much you can contribute to your Isa (or Lifetime Isa) per year as well as how much you can earn – or inherit – before you start. pay taxes.

Here are Blick Rothenberg’s calculations regarding tax and other regimes if they had been adjusted for inflation.

Personal tax allowance: frozen since April 2021

When should you thaw: April 2028

What is now: £12,500

What it would have been like if it hadn’t been frozen: £15,124

The personal tax allowance is the amount you can earn before you start paying income tax. THE freezing this allowance is important because it affects the majority of workers whose lowest incomes lose a greater share of their proportional income.

Known as the “stealth tax”, freezing income tax means you start paying it sooner than you would have if it had been increased, and if you are a current taxpayer higher or additional rate, more of your salary goes towards the higher tax. tax brackets.

This also means that an employer may have increased a person’s salary in line with inflation, but the employee is only entitled to a portion of that increase because that threshold has not been changed , which means he pays more taxes than he would have.

The lowest paid workers could have earned up to £15,124 before starting to pay tax if it had risen with CPI inflation, or £2,624 more per year.

Lifetime Isa contribution ceiling: frozen since April 2017 (date of implementation of the system))

What is it now: £4,000

When should you thaw: Unknown

What it would have been like if it hadn’t been frozen: £5,194

The Lifetime Isa (Lisa) program launched by the government helps people buy a house and save for retirement. It allows people under 40 to save, with the government offering a 25 percent top-up on contributions. The most you can save under this scheme is £4,000 per year – an amount which has not changed throughout its history.

If you pay the full allowance each year between the ages of 18 and 49, you can benefit from a total bonus of up to £32,000 (£1,000 per year).

If you’re buying a home, the savings and bonus from the Lisa can be used towards a deposit on a first home worth up to £450,000. This limit has also not increased since the product was launched, despite the sharp increase in property prices during this period.

Over the years the Lisa limit has remained the same, UK house prices have increased by around 30 per cent. As a result, many of those who started saving on their Lisa years ago may not be able to afford a property of their choice in their area.

There are also fees for withdrawing your money if you’re doing so for a reason other than buying a house (or before age 60), or if the property you’re buying costs more than the limit.

Technically, this penalty represents 25 percent of the total amount, but it equates to a net reduction of 6.25 percent in non-interest funds.

For example, someone who invested £16,000 of their own money on top of the £4,000 government bonus would be fined £5,000 – a loss of £1,000 of their initial savings.

Isa savings limit: frozen since April 2017

When should it be thawed: April 2030

What is it now: £20,000

What it would have been like if it hadn’t been frozen: £25,970

Rachel Reeves announced in the Budget that Isa limits would remain frozen until 2030. This means that the amount you can save tax-free will remain at £20,000 for Cash Isas and Stocks and Shares Isas, £4,000 for Lifetime Isas and £9,000 for Junior Isas until April 5, 2030.

The impact of this freeze is not as significant as others, as only a very small percentage of the population are wealthy enough to contribute £20,000 to their Isa. The average value of an ISA according to the most recent government data is just under £7,700.

Older and wealthier people will be more affected, however: for those over 65, the average amount they have in their Isa is £63,365. This is likely because they have been taking retirement income out of the stock market and putting it into cash to reduce risk – essentially to hopefully avoid having your money go up in smoke in the event of a stock market crash.

If the limit had increased since 2017 it would be much higher, at £25,970.

Ceiling of inheritance tax: frozen since April 2009

When it is thawed: April 2030

What is this : £325,000

What it would have been like if it hadn’t been frozen: £503,879

The inheritance tax tax exemption ceiling (IHT) was once again extended in the budget. Also known as the nil rate band, this is currently set at £325,000.

This means that if the value of your estate is less than £325,000, no IHT is due. But if your estate is worth more than that, HMRC can potentially take 40 per cent of the excess.

The government gives you an extra allowance if you leave your home to your children or grandchildren (including adopted, foster, and stepchildren). This is called the residence nil rate band.

Introduced in April 2017, it was also frozen at £175,000 until 2030 (it would be worth £210,000 if it hadn’t been frozen). This means that with the nil rate threshold of £325,000 on top of that, you could benefit from a total tax-free benefit of £591,271. However, if it had been indexed for inflation this would have been around £811,000.

“While Ms Reeves says only 5 to 6 per cent of all estates are typically liable to IHT, the decision to continue to freeze IHT allowance in future – as well as the decision to include savings -unused pension of a person in the estate for IHT – will realistically result in a significant increase in the number of estates subject to IHT over the coming years,” says Robert Salter, partner at Blick Rothenberg.

Currently, only one in 20 people pay IHT in the last financial year. But by 2030, this figure will almost double to 9.5 percent. HMRC raised a record £7.5 billion in the 2023-24 tax year.

Capital gains tax exemption: reduced

What it is now: £3,000

What it was: £12,300 in April 2022

How long does it have to be £3,000: April 2028

Note that certain thresholds have not been frozen, they have been lowered. This is true for the capital gains tax exemption, which sets the profit you are allowed to make from an asset without having to pay capital gains tax. Reducing this benefit impacts wealthier people or those earning ‘unearned’ income, which is likely to meet Kier Starmer’s definition of not being a ‘working person’, for example earn income from stocks or potentially from the sale of a rental property. .

“The significant reduction in the annual capital gains tax (CGT) exemption – from £12,300 per person two years ago to just £3,000 now – combined with the increases announced by Ms Reeves in her recent budget – could realistically signal the end of Ms Reeves. Thatcher’s ambitions for the UK to become a ‘shareholder democracy’,” adds Mr Salter.

It suggests that even with the increase in CGT announced in the Budget – with the top rate rising from 20 per cent to 24 per cent while the lower rate rises from 10 per cent to 18 per cent – ​​the changes will cost more. tax in terms of increase. administrative costs to collect the tax than those they will report.