A million more workers hit by stealth taxes

A million more workers will have to pay income tax this year, according to research done by the new Taxpayers Alliance (TPA), with those aged over 65s getting hit the hardest.

According to the TPA report, in the 2026/27 tax year, a million more workers than the previous year are forecast to be paying income tax, following the continuing trend of more workers paying tax as personal allowance tax thresholds remain frozen, a type of taxation strategy known as ‘stealth tax’.  

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On average, taxpayers will pay £640 more in income tax in 2026/27 compared to 2024/25, and £1,040 more compared to 2023/24.

Over 65s are getting hit the hardest however, with the number of pensioners liable for income tax up  by 630,000 in a single year, totalling 10.2 million pensioners now once again paying a portion of their income back to the Government.  

Of these, 9.5 million are of state pension age, meaning seven in every ten pensioners are now taxpayers.

With many allowances remaining frozen, such as inheritance tax, the personal allowance, and income tax, coupled with an increasingly aging population that is living longer each decade, the resulting tax raid is less of a surprise and more of an economic inevitability.  

New Prime Minister Andy Burnham initially hinted he would address the frozen threshold issues around the personal allowance. However, he has since pulled back on this issue. With the freeze expected to pull in £55 billion by 2030 for the Treasury’s coffers, and the expected £9 billion it would cost to uprate it in line with inflation, it is unlikely that any changes will be seriously discussed until the upcoming Autumn 2026 Budget.  

To give you an idea of the amount of money you are effectively losing through this freezing strategy, the personal allowance currently sits at £12,570, where it has remained since April 2021. If the personal allowance had risen in line with inflation, it would now sit at £17,380.

The forever frozen allowances

It has become the new norm for each Government – regardless of the Party - to announce a further freeze on allowances, kicking the can down the road with each successive freeze. All the while taxpayers are being forced to hand over increasing amounts as fiscal drag pulls them ever further beyond the out-of-date  thresholds.  

One example of this is Inheritance tax (IHT). Total IHT receipts collected by the Government have been steadily on the rise since the IHT threshold freeze.  

This was initially announced by the then Chancellor, Rishi Sunak, in his 2021 Budget. The Budget outlined that the IHT threshold would be frozen for five years until 2026. However, after ex-Chancellor Jeremy Hunt’s 2023 Autumn Statement, it was confirmed that the freeze would be extended a further two years until April 2028, and then after Rachel Reeves’ 2024 Autumn Statement, this was extended once again a further two years until April 2030, and finally after her 2025 Autumn budget, it was again extended, this time until April 2031.  

Many have been calling this move an example of stealth tax, as the freeze ultimately means an increasing number of Britons will fall into the tax threshold each year until the freeze ends in April 2031 – if it indeed does end and hasn’t been extended again by that time – and by then the Government will have collected billions of pounds worth of extra IHT from the taxpayer.

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The Financial Conduct Authority (FCA) does not regulate cash flow planning, estate planning, tax or trust advice.

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.