
5th July 2025
Stealth taxes raise revenue by freezing allowances and thresholds instead of increasing headline rates. As incomes grow with inflation, more earnings become taxable or shift into higher bands without Parliament voting a rate rise.
Income Tax Fiscal Drag
Since April 2022, the personal allowance, higher-rate and additional-rate income tax thresholds have been frozen until at least April 2028, pulling more taxpayers into charge and into higher rates without any change in rates.
Nearly 18 million more basic-rate taxpayers by 2027/28
12 million additional higher-rate taxpayers by 2027/28
2 million more additional-rate taxpayers by 2027/28
Compared to fully inflation-indexed thresholds, there would have been 3.7 million fewer taxpayers overall, 2.7 million fewer higher-rate and 600 000 fewer additional-rate taxpayers by 2028.
Pensioner taxpayers have been hit hard as the number of retirees paying any income tax rose from 6.7 million in 2021/22 to 8.8 million today, and those on the 40% or 45% bands more than doubled from 494,000 to over 1 million in four years.
Squeezed Savers and Investors
Stealth measures extend beyond wages
Personal Savings Allowance for higher-rate taxpayers halved from £1 000 to £500, pushing savings-interest tax receipts from £1.2 billion in 2021/22 to £9.1 billion in 2023/24 (projected £10.4 billion in 2024/25)
Dividend Allowance cut to £500 from £2 000 in 2022, exposing more investors to rates of 7.5%, 32.5% or 38.1% depending on their band
Capital Gains Tax exemption slashed to £3 000 in 2024/25 from £12 300 in 2022/23, raising liabilities on asset disposals for more taxpayers
Inheritance Tax and the 60% Trap
The inheritance-tax nil-rate band has been frozen at £325 000 since 2009, contributing to record IHT receipts of £8.2 billion in 2024/25, while only modest uplifts to the residence nil-rate band leave more estates in charge.
A severe cliff edge occurs for incomes between £100 000 and £125 140: personal allowances are withdrawn at £1 for every £2 earned, creating an effective 60% marginal rate in that slice of income before the standard 45% top rate applies.
Government Revenue and Economic Impact
The Office for Budget Responsibility estimates freezing income tax thresholds alone will raise over £38 billion per year by 2029/30. When combined with national-insurance freezes and cuts to the additional-rate point, total stealth-tax revenue is set to exceed £40 billion annually by the late 2020s3.
Though headline rates stay unchanged, these silent rises erode real household incomes, dampen consumer spending and may weigh on broader economic growth as more earnings flow to the Treasury instead of to consumption or savings.
What Can Be Done? - Mitigation Strategies
Many advisers recommend tax-efficient wrappers and planning to counter stealth taxes, such as:
Maximising ISA and pension contributions
Using salary-sacrifice schemes to lower taxable pay
Periodic income review to avoid crossing thresholds
Gifting and estate-planning to protect IHT allowances
Each individual's situation differs, so tailored advice can help safeguard real income and wealth against these creeping tax rises.
For more information go to the Private Office