Last month, Jeremy Hunt outlined the Government’s fiscal agenda going forward as part of his Autumn Statement. One of the major announcements from this speech was the confirmation that the income tax allowance threshold freeze will be extended. A consequence of this will be that taxpayers may have to pay more as they will find themselves “pushed” into higher brackets.
During Prime Minister Rishi Sunak’s time leading the Treasury, the tax allowance threshold was frozen until 2026.
However, Jeremy Hunt is pushing the extension to last until the 2027/28 tax year in a blow to taxpayers.
As it stands, workers on a lower income pay 32 percent tax on any money they earn over the tax allowance, which stands at £12,570.
This levy is split into 20 percent for income tax and 12 percent for National Insurance contributions.
READ MORE: Pension triple lock ‘needs reform’ for ‘means-tested’ payments
Households on a higher income pay 42 percent on any earnings over £50,270 with anyone on a £150,000 salary being hit with a 45 percent income tax rate.
These tax allowance thresholds have been in place since 2019 which means they will have remained the same for almost a decade until the extension comes to an end.
The majority of taxpayers will find themselves having to pay more to HMRC as a result of this decision from Mr Hunt.
This is due to peoples’ earnings going up but the tax allowance thresholds remaining frozen, which is referred to as fiscal drag.
Tom Selby, the head of retirement policy of AJ Bell, shared why the Chancellor’s decision will lead to people paying more tax.
The finance expert said: “From April those earning more than £125,140 will face a higher tax bill thanks to chancellor Jeremy Hunt.
“The rate at which the 45 percent rate of income tax kicks in will be lowered from the current £150,000 down to £125,140.
“The move means that someone earning £150,000 a year will pay almost £1,250 a year extra in tax – putting an extra two percent on their total tax bill.”
READ MORE: Waspi women wait for compensation verdict as ‘cruel’ rumours fly
The finance expert outlined why more people are going to be “pushed” into higher tax brackets over the next couple of years.
He explained: “On top of this all taxpayers are seeing a deep freeze on their income tax bands, meaning that more will be pushed into the next tax bracket.
“The amount you can earn within each income tax band would normally increase with inflation at the start of each tax year, but the Government has frozen them until 2028.
“It means that anyone who gets a pay rise could be hit with a higher tax rate, as well as potentially losing certain allowances, such as child benefit or their personal allowance.
“Putting money into pensions, or using other salary sacrifice plans, is one way to help keep tax bills down and retain allowances, but for some that’s not financially viable.”
The UK is currently experiencing a cost of living crisis which is adding further financial pressure onto Britons outside of tax woes.
Average energy bills for homes of typical usage are expected to go up to £3,000 annually next year.
The most recent inflation figures show the Consumer Price Index (CPI) at 10.7 percent, which is expected to come down in the next few months, but remain high.