Budget 2025: Extending the Threshold Freeze
The Institute for Fiscal Studies (IFS) has returned to a favourite topic, the impact of threshold freezes. Good timing (or co-incidence?). On the day (Friday 14 November) that the Financial Times reported the Chancellor has “ditched plan to increase income tax rates in the Budget”, the Institute for Fiscal Studies (IFS) issued a comment piece examining the consequences of extending the income tax threshold freeze to 2029/30.
One of the simpler ways to realise a decent amount of extra cash is by extending the income tax threshold freeze to 2029 / 30. However, a freeze still carries significant political risks: in the last Budget the Chancellor said, “Having considered this issue closely I have come to the conclusion that extending the threshold freeze further would hurt working people.”
The IFS makes the following points about an extended freeze of thresholds:
Relative to what was once the norm of threshold indexation, the current income tax freeze to 5 April 2028 is expected to raise £39bn a year in 2029/30 (similar to the impact of increasing all income tax rates of by 3.5 percentage points).
To this can be added the current National Insurance (NIC) threshold freezes for employees (from July 2022) and the self-employed (April 2023) which are set to raise £3bn a year in 2029/30.
If the Chancellor chose to keep all currently frozen NICs (including employer) and income tax thresholds frozen for two further years, this would raise a further £8.3bn a year by 2029/30 (much the same as a 1p increase in basic rate tax).
An extension would bring the total number of people subject to income tax at higher rates (i.e. marginal rates of 40% or above) to 10.1m million. That represents an increase of 790,000 compared with current policy and a 4.8m increase relative to if there had been no freezes.
An extended threshold freeze is an easy way out for the Chancellor – effectively delegating her tax policies to rising inflation.
Over the next couple of weeks in the lead up to and immediately after the Budget on 26th November we will be providing insightful commentary and advice for those in later life. This can be best accessed reviewing our regular blog articles and commentary on the Harold Stephens website and social media channels. Search for ‘Harold Stephens IFA’ on You Tube and subscribe to the channel to get the very latest videos direct from Richard Higgs, later life financial planning specialist.
Finally, register and reserve your place at one of our 2 post-budget Later Life Financial Planning live events to be held on Wednesday December 3rd 2025 by emailing office@haroldstephens.co.uk. Details below:
Wednesday 3rd December - 1.30pm - 2.30pm - St Peter’s Church, The Drive, Henleaze BS9 4LD
Wednesday 3rd December - 6pm - 7pm - Stoke Lodge, Shirehampton Road, Stoke Bishop BS9 1BN