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BRANAGANS

Accountancy Services Ltd

01709 327 215 | info@branagans.co.uk

December 2025 | Frozen thresholds will make an extra 5.2m people taxpayers

The largest amount of money raised by the Chancellor comes from extending the freezing of income tax thresholds for an additional three years. The measure, introduced in 2022, was due to end in 2028, but will now continue to remain unchanged until 2031, which will raise £12 billion alone for this additional period.

Overall, the measure will raise £56 billion a year by 2030/31, amounting to around £1,300 per taxpayer, with an extra 5.2m people becoming taxpayers because they will be dragged into the tax net between 2022 and 2031.

Laura Suter, director of personal finance at AJ Bell, said: "The chancellor has doubled down on what was once the Conservatives' brainchild: the income tax freeze is now firmly the 'Reeves Freeze', extended for another three years until 2031. The result is that every taxpayer in the country will see their wages quietly eroded by higher tax bills. While not a headline tax hike, make no mistake, this is a tax raise by another name.  "It's quite the U-turn for Reeves, who when in opposition claimed the policy was 'picking the pocket' of working people. It's not going to help her lack of popularity with the voting public, but it will be intended to appease the bond markets."

WHAT LEVEL HAVE THE INCOME TAX THRESHOLDS BEEN FROZEN AT?

The current tax-free personal allowance is £12,570 and this will remain the same until 2031, and the higher your earnings, the more you will be paying in tax. For example, someone earning £15,000 today would pay an extra £259 over the next three years, rising to £683 for someone on £45,000, while the highest earners would pay an extra £1,293 in tax, said AJ Bell.

For the higher rate taxpayers, the 40% tax band is frozen at £50,270, and the 45% tax bracket is frozen at £125,140. But your personal allowance is eroded at the rate of £1 for every £2 you earn above the £100,000 threshold, until it completely disappears at £125,140.

Ms Suter added: "The damage is already clear. Since 2021, over 8.3 million people are now paying higher or additional rate tax, up by 45%, and extending the freeze will push even more working people and pensioners into higher tax bands. According to the OBR, [this] extension alone will rake in £12 billion in extra revenue by 2030/31.

"The tax freeze has dragged almost three times more people into the higher rate band than was originally expected. When the freeze was first announced in 2021, the OBR predicted it would create 1 million more higher-rate taxpayers. Today, 2.7 million more people are paying the 40% rate, and the OBR now expects this to grow to 4.8 million by 2030-31. Across the entire freeze, the OBR now thinks between 2022-23 and 2030-31, 5.2 million additional individuals will become income taxpayers, while there will be 600,000 more additional rate taxpayers."

WHERE WOULD THE THRESHOLDS BE IF THEY HADN'T BEEN FROZEN?

The thresholds would have risen considerably during this period if they had not been frozen, according to figures from the OBR. The estimate for the personal allowance would be £17,470 by 2030/31, and the higher rate threshold would have risen to more than £70,370 - an additional £20,100 higher.

Ms Suter said: "By our own calculations, if you take Reeves' extension to the freeze alone, the personal allowance would have stood at just over £13,353 by the 2030/31 tax year - instead it will remain stuck at £12,570. At the same time, if frozen thresholds hadn't been extended, in 2031 you would have been able to earn £53,400 before paying the 40% tax rate - instead the actual threshold will be £3,130 less.

"Nothing can make up for the lost years where income tax bands have seen no inflationary uplift. The cumulative cost is staggering: the OBR estimate it will cost taxpayers £56 billion a year by 2029-30, around £1,330 per taxpayer on average."

One other thing to note is that the inheritance tax thresholds have been frozen once again, bringing more people's estates into the IHT net when they die. But one additional change the Chancellor announced was that 100% rate of agricultural and business relief transferable to a spouse or civil partner from April 6, 2026.

WE CAN HELP YOU MEET YOUR OBLIGATIONS

If you have any concerns about how you can reduce your tax liabilities efficiently and within the law, then please get in touch and we would be happy to give you the guidance you need. Get in touch  with us on 01709 327 215 or email info@branagans.co.uk and we will explain what you need to know.

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