A freeze on most major tax thresholds in the 2021 Spring Budget, including Income Tax, Inheritance Tax, pensions and Capital Gains Tax thresholds, is set to bring in billions for the Treasury over the next five years.

Paul Johnson, Head of the Institute for Fiscal Studies, commented that the spending plans unveiled in this year’s Budget “don’t look deliverable, at least not without considerable pain.” This pain, it appears, has taken the form of the largest tax hike since the early 1990s (1).

Taxing by stealth

So, why are so many financial commentators referring to the Spring Budget as the ‘stealth tax’ Budget? The reason that tax allowance and threshold freezes are often viewed as a ‘stealth tax’ is that they don’t immediately affect workers’ take-home pay, meaning they are much easier to introduce than tax increases. Over the years, however, wages will rise with inflation, quietly pushing increasing numbers of people into higher tax brackets, resulting in higher returns for the Treasury.

This has led former Chief Economist at PwC UK, John Hawksworth, to comment that Mr Sunak had been “a bit economical with the truth to say no-one will see their take-home pay shrink.”

Tax efficiency is key

It is more important than ever to plan your finances carefully and use as many of your tax-efficient allowances as possible. We can help you build a comprehensive financial plan to ensure maximum tax-efficiency. (1 )IFS, 2021

It is important to take professional advice before making any decision relating to your personal finances. Information within this page is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK.

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CA Financial Services offer financial advice, pensions, investments, ISAs, Equity Release and Inheritance Tax Planning for the whole family. We have 14 years’ experience as Financial Advisers based from Sevenoaks and are truly independent, allowing us to give our customers the best financial advice possible.