Autumn Budget: Income Tax Thresholds Frozen for Longer — What It Means for You

One of the most significant announcements in the Autumn Budget is the extension of the freeze on income tax thresholds. Although the freeze itself was expected, the duration has now been stretched even further — remaining in place for three more years, not the two previously anticipated.

This means that by 2031, income tax thresholds will have been frozen for almost a decade.

Why This Matters

When thresholds stay still but wages continue to rise, more people are naturally pulled into paying higher levels of tax. This effect — often referred to as fiscal drag — happens quietly, without any formal tax rate increase, but the result is the same: a higher tax bill for many households.

According to the government’s own forecasting, around 780,000 additional people will be brought into paying income tax in 2029–30 as a direct result of the extended freeze. Many others will move from basic-rate into higher-rate taxation even if their pay only increases in line with inflation.

A Change in Direction

The income tax threshold freeze was originally introduced in 2021. At the time, it prompted criticism, including from now-Chancellor Rachel Reeves, who argued it placed greater pressure on working families.

The decision to extend the freeze signals a notable shift and highlights the financial pressures currently facing the government. It also confirms that tax planning will remain an important consideration for individuals and businesses over the coming years.

How This Could Affect You

You may notice:

• More of your pay is taxed, even if your income only rises modestly.
• You could move into a higher tax band sooner than expected.
• Your take-home pay may not keep pace with rising living costs.
• The tax position of bonuses, pay reviews or second jobs may change.

For higher-earning individuals and dual-income households, the impact may be particularly noticeable over time.

What You Can Do Now

While thresholds are set by government, there are steps you can take to manage the impact:

• Review your expected income for the next few years.
• Consider tax-efficient planning strategies such as pension contributions or salary sacrifice arrangements.
• If you run a payroll, factor these changes into employee budgeting, pay rises, and future planning.
• Seek tailored professional advice on how the freeze may affect your personal or business tax position.

Summary

The extension of the income tax threshold freeze is a major, long-term change that will subtly increase the tax burden on millions of people. Although no tax rates have risen, many individuals will find themselves paying more tax simply because their income grows while thresholds remain static.

If you’d like help understanding how this will affect you or your business, Merranti Accounting is here to support you.