Most people think their taxes only go up when the government comes out and announces a rate change. In reality, across the UK, millions of taxpayers are paying more each year simply because tax allowances and thresholds have been frozen in place while wages, pensions, and prices have kept climbing. A new analysis from the Association of Taxation Technicians puts this problem front and center, warning that many allowances and reliefs haven’t moved in decades, meaning inflation alone has steadily eaten away at their real value.
One major example the analysis points out is that the standard inheritance tax cap has been stuck at £325,000 since 2009 and isn’t expected to change until 2031. Believe it or not, the annual gift exemption — which lets you give away £3,000 a year tax-free for inheritance tax — hasn’t changed since 1981. The personal savings allowance, Rent a Room Relief, and pension contribution limits for those without relevant earnings have all taken a similar hit — none have kept pace with inflation.
Income tax thresholds have been frozen since April 2021 and are set to stay that way until at least April 2031. Governments have used this tactic for years because it raises more tax revenue without requiring anyone to stand up and announce a rate hike, which makes it much easier to slip past people’s attention. Critics say that’s the whole problem. Many taxpayers don’t realize that inflation alone is dragging them into higher tax bands even though their actual financial situation hasn’t improved much. That’s fiscal drag, and it’s been happening quietly for years.
The Chartered Institute of Taxation has raised another concern — growing numbers of pensioners are being pulled into income tax territory, even when their income has only risen in line with the state pension. The Office for Budget Responsibility estimates around a million more pensioners could end up owing income tax by 2030–2031 if the current freezes hold.
According to financial advisers, this is making it harder for people to plan for the long term. Families are finding it more difficult to save for retirement, build up an emergency fund, or pass on assets to their children, especially since many tax reliefs aren’t worth what they used to be. Experts say the tax system would be fairer and easier to understand if thresholds and allowances were regularly updated to match inflation, rather than being frozen for years.
