Rathbones estimates that someone earning £100,000 by April 2025 would face an extra tax burden of £4,043, compared with £2,517 if the freeze ends in April 2028
The freeze on tax thresholds, combined with rising wages, is pulling more people into higher tax bands – a phenomenon known as fiscal drag. If extended, higher earners could pay over £7,000 in additional income tax over the period since thresholds were first frozen in April 2021.
With an income tax hike ruled out, extending the freeze on thresholds could be the government’s main lever to plug the multi-billion-pound fiscal gap. This move increases the pain for those with little disposable income, a situation many parents find themselves in, as more people are dragged into higher tax bands - even though their real purchasing power hasn’t improved. People will feel the impact of these tax rises straight away. A bigger slice of any pay rise is lost to tax, which could discourage promotions or overtime. The additional tax burden would be £1,766 for someone who was on £80,000, £1,438 for those who earned £50,000, and £353for those on £35,000.
Reforming Stamp Duty could result in 300,000 additional home transactions
Replacing Stamp Duty Land Tax (SDLT) with a new property tax has been suggested as a potential Budget measure. Proposals include a ‘mansion tax’ on high-value homes, taxing rental income through National Insurance, and introducing new council tax bands for higher-value properties.
Rathbones’ economists estimate that abolishing SDLT could boost housing market activity by 25%, equivalent to more than 300,000 additional transactions per year.
With mansion tax & council tax xxx Rathbones’ economists estimate that abolishing SDLT could result in more than 300,000 additional housing transactions per year, an increase of over 25%. This is based on a detailed academic assessment of the impact of SDLT on household mobility and the official statistics on housing transactions.
Oliver Jones, Head of Asset Allocation at Rathbones, says: “Housing is the least mobile form of wealth, making property taxes hard to dodge and attractive to policymakers. But not all property taxes are equal. Levies like stamp duty, which make moving home costly, are among the most damaging. When people can’t relocate to affordable housing, businesses struggle to find workers. Growth in innovation hubs such as Cambridge has been stifled by limited housing supply. Policymakers should therefore look for ways to remove and replace, not increase, taxes on property transactions.”
Cuts to pension tax relief risk £50bn loss of investment
Rathbones’ investment research team analysed the impact of replacing 40% and 45% pension tax relief with a flat 25% rate - a change reportedly under Budget consideration and previously backed by Pensions Minister Torsten Bell. Drawing on Danish data, where similar reforms triggered sharp falls in pension saving, Rathbones estimates UK pension inflows could drop by over £50bn in five years, even under conservative assumptions.
Rebecca Williams, a Divisional Lead of Financial Planning at Rathbones, says: “While the government have put rumours of a change to the pension tax free lump sum to bed, speculation over the upfront tax relief on pension contributions remain – as has been the case before various major fiscal events in the past decade. With more responsibility falling on individuals to build a sufficient pension pot, it’s vital that people are encouraged to save and invest for their future so they can enjoy a comfortable retirement from their own resources. Further reductions in pension tax relief risk undermining this goal.”
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