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