The potential cost of the "Reeves Freeze" on income tax thresholds is up to £1,300

The Office for Budget Responsibility estimates that by 2031, the income tax threshold freeze will generate an additional £12 billion

According to a recent analysis, the government's prolonged freeze on income tax thresholds may make you 1,300 worse off.

Chancellor Rachel Reeves confirmed that the income tax threshold freeze would be extended by three years, from 2028 to 2031, in the 2025 Autumn Budget. The chancellor stated that she would not "pretend otherwise" because she knew that raising income tax rates would have an impact on working people, despite the government's pledge to do so in their 2024 election manifesto.

According to calculations by investment platform AJ Bell, the extension will result in taxpayers paying up to 1,292 more in taxes over the course of three years compared to the freeze ending in 2028.

"The chancellor has doubled down on what was once a Conservative brainchild: the income tax freeze is now firmly the Reeves Freeze, extended for another three years until 2031," stated Laura Suter, director of personal finance at AJ Bell.

As a result, the country's taxpayers' wages will be subtly reduced by increased tax obligations. The "

How your earnings will be reduced by the freeze.

Those with larger incomes will be more negatively impacted by the income tax threshold freeze until 2031.

A person earning £15,000 a year now will pay an additional £259 in taxes over the three years between 2028 and 2031, with their personal allowance remaining at £12,570.

Over the same three years, a person earning £45,000 will lose 683, while a person earning £47,000 will have to pay an additional £1,292.

According to AJ Bell, a person earning £47,000 will probably become a higher rate taxpayer between now and 2028 as a result of rising wages, which means they will have to pay 40% tax on a portion of their income. You pay the higher income tax rate on taxable income between 50,271 and 125,140 in England, Wales, and Northern Ireland. Income over 125,140 is subject to the additional 45% rate.

Since income tax thresholds were first frozen in 2021, over 8.3 million people have now paid higher or additional rate taxes, and more are expected to fall into this net between 2028 and 2031.

The Office for Budget Responsibility (OBR) estimates that the extension included in the budget will generate an additional 12 billion in revenue.

The OBR estimates that the personal allowance would have been 17,470 by 2031 and the higher rate threshold would have been 70,370 more than 20,000 higher if there had not been a freeze since 2021.

"Nothing can make up for the lost years when income tax bands have not experienced an inflationary uplift," Suter continued.

"The total cost is enormous: according to OBR estimates, taxpayers will pay 56 billion annually by 2029 - 2030, or roughly 1,330 per taxpayer on average. The "

Source: Bell, AJ.

How to avoid income tax thresholds that have been frozen.

You can lessen the impact of frozen thresholds depleting your hard-earned money by taking certain actions.

Optimizing your ISA and pension allowances, such as the annual allowance, which protect your investments from income, dividend, and capital gains tax, is advised by James Norton, head of retirement and investment at Vanguard Europe.

"If you're retired, think about how to get the most money. The majority of people will benefit most from withdrawing funds first from general investment and cash savings accounts. This implies that you can leave money in ISAs and pensions to grow tax-free for a longer period of time, according to Norton.

According to Andrew Prosser, head of investments at the investment platform InvestEngine, you will receive pension tax relief if you increase your pension contributions.

"After government and personal tax relief are applied, a 20,000 contribution can effectively cost just 12,000 for higher-rate taxpayers, making careful planning more crucial than ever. A "