The freeze on personal allowance and tax bands which was mentioned in the budget seemed harmless, however it is one of the most impactful measures on individuals that the government has taken in the 2021 Budget.

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In the budget the Chancellor announced that the government was going to continue spending and increase a few taxes. One measure that was slipped in was the freezing of the income tax bands from 2022 to 2026. This seems quite harmless and almost feels like a tax freeze, however this is one of the most stealthy tax rises that we will see.

You would expect wages to grow at the rate of inflation at the very least. Why? Well the cost of everyday goods rises each year as a result of inflation. It means that the items that you buy get more expensive, so you would expect your wages to increase by that amount to make sure you could keep buying the same amount of groceries, fuel etc because no onw wants to run out of toilet paper! What that means is that if you were earning less that the tax allowance of £12,570 or just under the higher rate limit of £50,270, you run the risk of crossing into the higher band and therefore paying more tax.

This is a real potential problem for many people. It is estimated that 2.3m more adults will pay more tax. 1.3m people will move into the income tax bracket who weren't paying tax before. And 1m people will move from the basic rate tax of 20% to being a higher rate payer. It is estimated that this freeze will raise a huge £19.2bn between 2022 and 2026, leaving many people poorer without really knowing why.

We all want to earn more money but this is something that we should be aware of the tricks that governments will do to earn more tax. This is a stealthy way of the taxing income and earning more money.

Big love,

Anthony

Links

Stealth raid on income taxes (FT) - https://www.ft.com/content/2f485d0b-ee4d-4b20-9e4c-ad3ed52ffec4?emailId=6040745791e2810004114b8a&segmentId=22011ee7-896a-8c4c-22a0-7603348b7f22

Extra 1.3m will start paying income tax (Guardian) - https://www.theguardian.com/money/2021/mar/04/extra-13m-people-in-uk-to-start-paying-income-tax-over-next-five-years

Income Tax Thresholds Frozen - Meaning many will pay more (MoneySavingExpert) - https://www.moneysavingexpert.com/news/2021/03/budget-2021-income-tax-increases/

The Budget Speech - https://www.gov.uk/government/speeches/budget-speech-2021

OBR: Freeze on personal allowance threshold - https://www.belfasttelegraph.co.uk/news/uk/obr-freeze-on-personal-allowance-threshold-will-drag-13m-into-tax-system-40155019.html


*None of this is meant to be construed as investment advice, it's for entertainment purposes only. Links above include affiliate commission or referrals. I'm part of an affiliate network and I receive compensation from partnering websites. The video is accurate as of the posting date but may not be accurate in the future.