Millions of workers to pay more tax: we explain how freezing of thresholds will affect you

Millions of workers will be worse off after Chancellor Jeremy Hunt froze tax thresholds until April 2028 in today's Autumn Statement.

It was already the case that income tax and National Insurance thresholds would be frozen until 2026, but the Chancellor has now extended this for two years.

Speaking in the House of Commons, Hunt said: "I am maintaining at current levels the income tax personal allowance, higher rate threshold, main national insurance thresholds and the inheritance tax thresholds for a further two years taking us to April 2028."

It means the point at which you start paying 20% tax will be frozen at £12,570, while the threshold for paying higher-rate tax (40%) will stay at £50,270.

As most workers see their wages go up each year so that they keep up with inflation, it means  many workers will find themselves dragged into a higher tax band by stealth - and end up paying more income tax.

If there’s 5% wage growth this is how much more tax you’ll pay each year because of frozen tax thresholds, according to analyst Quilter:

Around 250,000 higher earners will also pay more in tax as the level at which the 45p top rate is due will be cut from £150,000 to £125,000.

Paul Barham, Partner at Mazars commented: “With a gaping hole in the public finances, income tax an easy target for the treasury. Putting the thresholds on ice, and lowering the 45p tax band, is a double whammy and will raise billions for the treasury. Millions will be in the higher and additional rate tax bands in the coming years. And high earners will really feel the hit, with a higher proportion of their income subject to the 45% tax rate.”

Other tax changes

Inheritance tax freeze: more people to pay IHT

As expected the chancellor extended the freeze to the inheritance tax (IHT) threshold (known as the nil-rate band) from 2025-26 to 2027-28.

Like income tax, as the country’s salaries rise each year and drag workers into a higher tax band, assets like property also rise over time, leaving more and more people susceptible to getting dragged into paying more tax.

It means more people will have to pay inheritance tax, while others who would already pay some IHT will have to pay more

Capital gains tax: pay more when you sell a second property or shares

The tax free allowance for capital gains that lets people sell assets such as a second property or shares will reduce in 2023–24 from £12,300 to £6,000 and again to £3,000 in 2024-25. 

Again, it means you'll pay more CGT.

For example, if you sell a second property for £200,000, having previously bought it for £140,000, you will have made a profit or ‘gain’ of £60,000. Under the former annual allowance of £12,300 being taken off, this taxable gain fell to £47,700. Now under the new threshold of £6,000 that taxable gain falls to £54,000 and eventually, under the 2024-25 threshold of £3,000, £57,000 - leaving you to pay more tax.

If you’re a basic rate tax payer you’ll pay 18% on property - if you’re a higher rate tax payer you’ll pay 28%.

If you sell stocks and shares, you’ll pay CGT in the same way: 10% if you’re a basic rate taxpayer and 20% if you’re a higher rate and additional rate taxpayer.

Dividend tax: the self-employed and investors to pay more

The Government has cut the tax-free allowance for dividends from £2,000 to £1,000 in 2023–24 and £500 in 2024-25.

This will affect hundreds of thousands of freelancers, small business owners and contractors who pay themselves through dividends and investors who receive dividend payments from their investments outside of an Isa.