This is where the tax thresholds ought to be by now, having been frozen since the 1980s

Analysis shows that allowances could have increased fourfold if they had kept up with inflation

Some investments and savings have been frozen at the same level for nearly 50 years, which is understandable if you're feeling the pinch of tax thresholds creeping around them.

Based on calculations by investment platform Interactive Investor, these allowances could have increased fourfold if they had kept up with inflation.

For instance, the inheritance tax annual gifting allowance, which is the amount you can donate annually without having it added to the value of your estate for inheritance tax purposes, has stayed at £3,000 since 1981, or 44 years ago.

This annual exemption should be 11,529 today after accounting for inflation, which is 8,529.

It is true that the annual exemption from capital gains tax has grown over time, going from 3,000 in 1981 to 12,300 in 2020 - 2021. However, it has been reduced to its early-80s level since April 2023.

With the frozen CGT exemption currently at 3,000, more investor profits are subject to taxation (unless they are protected in an ISA or pension, where gains grow tax-free).

The dividend allowancethe annual amount of dividends you can receive tax-freehas been the most severely penalized. It was reduced from a healthy 5,000 in 2016 to 2,000 the following year, and it is currently only 500.

Today, it would be 6,876nearly 14 times higherif the dividend allowance had increased in tandem with inflation rather than experiencing sporadic reductions.

Because of the recent period of significantly higher inflation, even changes to the tax threshold in recent years are painful. Since 2021, the income tax higher-rate threshold has remained fixed at £50,270. This threshold would be approximately 62,000 today, a difference of nearly 12,000, if it had grown in accordance with inflation.

According to Craig Rickman, a personal finance specialist at Interactive Investor, "Fiscal drag is a cunning strategy of gradually increasing the tax burden by freezing tax thresholds, which forces people to pay a larger portion of their income as wages increase in line with inflation."

It may not be as evident as directly raising tax rates, but over time, especially considering how long some of these rates have been frozen, it may have a greater effect.

As the autumn budget draws closer, complaints about fiscal drag are probably going to get louder. Tax increases may be imminent as a result of the government's possible failure to adhere to its strict, unbending fiscal regulations after a string of reversals on welfare spending cuts.

The government can raise billions of pounds by extending the deep freeze on tax thresholds past 2028, Rickman continued, "without technically violating its manifesto pledge not to raise taxes on working people."

For how long has the tax threshold been frozen?

Double the personal savings allowance.

Additionally, the Office for Budget Responsibility has noted fiscal drag. By 2028 - 2029, 35 million more people will be drawn into the higher-rate tax bracket of 40%, according to the company's most recent fiscal risks and sustainability report.

Savers will be significantly impacted because any basic-rate taxpayer who increases to the 40 percent higher-rate tax bracket will see their personal savings allowance (PSA) cut in half, from £1,000 in annual interest-free savings to just £500.

"Savers must make the most of their ISA allowance and shield their hard-earned money from taxes," stated Rachel Springall, a finance specialist at Moneyfactscompare . co . uk. Because the annual cash ISA allowance is still up for debate, savers will undoubtedly want to make the most of their deposits in the interim.

Just over 8 million taxpayers pay higher and additional rates than the basic income tax rate of 20 percent. In contrast, that amount increased by more than 45 percent to just under 50.7 million in 2022 - 2023 when the threshold freeze was first implemented. The freeze on the income tax threshold is scheduled to last until 2028 or 2029.

Quilter's tax and financial planning specialist, Rachael Griffin, said: "Chancellor Rachel Reeves claimed in the 2024 Autumn Budget that lifting the freeze until 2030 would increase government revenue by billions of pounds.

But she also pointed out that it would harm working people and violate Labour's pledges in the manifesto, stating that there would be no extension. As an alternative, personal tax thresholds would once more be raised in accordance with inflation between 2028 and 2029.

There have been rumors that the chancellor may change his mind and decide to freeze income tax thresholds until 2030 due to the difficult fiscal situation. This doesn't seem likely, though, considering the anticipated backlash and the government's pledge to keep working people's taxes unchanged.

Band for inheritance taxes.

One of the main reasons inheritance tax revenues are rising annually is because rising asset prices are pushing more estates into IHT territory, which is why the nil-rate inheritance tax band has been frozen at 325,000 since 2009.

Many homeowners now have a higher tax-free threshold after the residence nil rate band was introduced in 2017, but this allowance has remained unchanged for the past five years.

Additionally, you are ineligible for the residence nil rate band, which penalizes childless couples and begins to taper off once your estate exceeds £2 million, unless you leave your family home to direct descendants, such as children and grandchildren.

"More estates will face larger tax bills over the coming years due to the combination of frozen tax-free thresholds and the government's proposed IHT reforms to pensions, farms, and businesses," Rickman stated.

Tax trap of 60%.

Additionally, frozen thresholds have caught the 60 percent income tax trap, which occurs when your income surpasses £100,000.

In this case, you lose one of your personal allowances, which is currently £12,570, for every two incomes over £100,000. Your personal allowance is taken out in full when your income hits 125,140. This tapering process continues until then.

It has been 15 years since this tax threshold was established. With inflation taken into consideration, it might have gone from 100,000 to just over 150,000 in today's dollars.

"It's always worth remembering that salary sacrifice is a great option for anyone within this salary band," Rickman continued. By increasing your pension contributions to keep your pay below £100,000, you're not only avoiding the tax trap but also improving your retirement.