Rishi Sunak may have to break income tax promise says expert
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The Government’s stealth tax raid will cost the average family in England and Wales £430 a year. The freeze will also mean an additional 1.5 million people on low pay will need to pay income tax by 2026.
It has led to calls from the Liberal Democrats for the Government to scrap their planned stealth tax raid that will “clobber families who are already feeling the pinch”.
Regional figures show that London and the South East are set to be the hardest hit by the stealth tax, costing them on average £500 per household.
An estimated 230,000 more people in the South East will be paying the higher income tax bracket and an extra 210,000 will be paying income tax, leading to a total hit of £1.9billion to taxpayers in the region in 2026.
Across all regions, household disposable incomes will be one percent lower in 2025/26 than they would be if there was no freeze to income tax thresholds.
In real terms that works out households being worse-off by £430.
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Liberal Democrat Treasury Spokesperson MP Christine Jardine, said: “Boris Johnson must drop this unfair stealth tax that will clobber families who are already feeling the pinch.
“People are worried about the rising cost of living and paying their bills this winter.
“Now they face years of tax rises under a Conservative government that is taking them for granted.”
Andrew Tully, technical director at Canada Life said 1.2 million people will be driven into the 40p higher rate tax band, but there are some things they can do.
Mr Tully said: “While the Treasury’s plan to freeze income tax thresholds will be felt by over a million workers, there are steps employees can take to mitigate this.
“One solution for those on the higher tax rate tipping point who may have received a pay rise and be unaware of the implications of the frozen bands could be to pay a voluntary additional contribution to their pension – if they can afford it.
“However, given the looming cost of living crisis, this may not be for everyone.
“This is because employees are effectively reducing or deferring their salary now for retirement later on – although they can reduce contributions in the future should they need extra income today.”
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Currently, the Personal Allowance means anyone earning up to £12,500 doesn’t have to pay any tax.
The Basic rate band applies to taxable income of £12,501 to £50,000, where anyone in this salary band must pay 20 percent.
The Higher rate band means anyone earning between £50,001 and £150,000 will have to pay 40 percent tax.
Keeping these thresholds the same means millions more Britons will move into the basic and higher rate bands as salaries typically increase with inflation.
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