How much will Rishi Sunak’s tax rises cost you?

Chancellor Rishi Sunak’s stealth tax raid will make tens of millions of families poorer at the worst possible time, as our living costs are already going through the roof.

Many families fail to understand just how much it will cost them, because the Treasury would rather these details are kept secret. That's the whole point of stealth taxes—to generate maximum possible revenue used for HM Revenue & Customs, with minimum political fuss.

In his Budget in March last year, Sunak froze income tax threshold for five years, until at least 2026, and froze inheritance tax and capital gains tax thresholds as well. That means they will not increase for five tax years in total, dragging more into the net as incomes, house prices and share values rise.

Last September, this was followed by Boris Johnson's announcement of a new health and social care levy, which adds 1.25% to National Insurance for almost 30 million workers. 

This is designed to range £12 billion a year to fund social care and clear the post-COVID NHS backlog.

So how will they affect you?

National Insurance hike

The average worker earning £30,000 a year will pay an extra £255 in NI from April 6, 2022. Somebody earning £50,000 a year will pay £505 extra. Worse, their NI bill will steadily rise, year after year, along with their wages. People earning less than £9,880 a year don't have to pay NI.

Tip: Employees may be able to cut their exposure by through “salary sacrifice”, where they agree to take pay as pension instead of income.

Income tax freeze

As wages rise but income tax thresholds remain frozen, workers and the self-employed will handover more than money to HMRC. From April, a £30,000 earner will see their annual income tax bill rise by £180, according to figures from Hargreaves Lansdown.

This assumes their salary rises by 3%—if they get a bigger increase they will pay even more income tax. Remember, that’s on top of the £255 extra NI. So, their total combined income tax and NI bill will increase by £435 over the next year.

Someone who earns £50,000 more will pay £560 more income tax, assuming a 3% pay rise. Once combined with NI their bill will rise by £1,065.

This bill will rise, year by year, especially if wages increase at a faster pace due to rocketing inflation.

Tip: Again, consider salary sacrifice, which also applies to other company perks such as workplace nurseries, cycle-to-work schemes and ultra-low emission vehicles.

Inheritance tax freeze

Last March, Sunak froze the inheritance tax nil-rate band at £325,000 for five years, and the main residence nil-rate band for those passing on a family home to their children or grandchildren, at £175,000.

Individuals can pass on £500,000 of assets to love ones free of IHT, but as house prices rise more will get caught out anyway.

Someone with a £500,000 home will pay no IHT today if passing it to children, but if house prices rise 10% this year (as they did in 2021) their property’s value would jump to £550,000.

As IHT is charged at 40% on all liable assets, they could hand £20,000 to HMRC, and this could rise in subsequent years as the IHT allowance are frozen.

Tip: Making financial gifts to loved ones can reduce your exposure to IHT, so start planning now.

Capital gains tax freeze

Every adult can make capital gains of £12,000 a year, without paying capital gains tax (CGT), but that threshold has been frozen for five years, too.

Tip: Reduce your CGT exposure by spreading gains across several years, using your partner's CGT allowance too, or offsetting losses against gains.

Read more: 20 ways to beat the cost of living crisis

Read more: How to save during the year of squeeze

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