One of the biggest reforms in the Autumn Budget (2025) was the extension of the income tax band “freeze” by a further three tax years. Already set to remain static until April 2028, Chancellor Reeves confirmed that the bands would continue in their current form until 2031.
This decision has sparked widespread debate as millions more taxpayers risk being pushed into higher brackets through fiscal drag. Our financial planners at Castlegate have reviewed the implications for everyday savers, workers and retirees who want to build financial security.
You can find our thoughts below. Please get in touch if you have any questions or if you wish to discuss your own financial goals or strategy with us.
The Chancellor surprised some analysts in the Autumn Budget by not imposing a blanket rise to income tax (which would have certainly broken Labour’s manifesto pledge in 2024).
However, the decision to extend the income tax freeze has been dubbed a “stealth tax” that arguably breaks the pledge in spirit, if not strictly in word.
The tax-free Personal allowance will remain at £12,570 until 2031. Above that, the basic rate will hold at 20% up to £50,270. The 40% higher rate will apply above this threshold until income hits £125,140. Thereafter, the 45% additional rate applies.
That might not sound like a problem. After all, it’s not an outright tax rise. However, as average UK wages go up in the coming years (e.g. possibly at 4% if 2026 follows expectations for this year), then more people are going to end up paying more tax.
Indeed, many currently earning below the £12,570 Personal Allowance could end up paying income tax for the first time, and over 900,000 people could become higher rate taxpayers by 2031. 4,000 more extra people could become additional rate taxpayers.
This is known as “fiscal drag”, and it could generate over £10 billion annually for the Treasury by the policy's end.
Naturally, a freeze on income tax could mean that you “feel” less of the benefits from a pay rise or bonus in the coming years. At Castlegate, the 2031 extension has been further confirmation to focus on prudent tax planning to ensure you keep more of your hard-earned income.
One lifeline for pensioners is that the Chancellor confirmed those whose sole income is the basic or new State Pension will not pay tax on it. This was feared because the tax-free Personal Allowance of £12,570 is expected to be exceeded due to the State Pension “triple lock”.
However, pensioners risk higher-rate status from state pension uplifts plus private pensions, eroding retirement planning. Working families and mid-career professionals will also bear the brunt of the freeze.
Many will be less inclined to work overtime or go for promotions if salary increments inflate taxable income without lifestyle gains. Self-employed individuals, already hit by Class 4 NI thresholds, may see squeezed margins as business turnover growth mimics wage inflation.
At Castlegate, our financial planners are gently reminding clients to focus on what they can control after the Autumn Budget’s announcements. For instance, you cannot control the freeze on income tax, but you can still optimise income-dividend ratios (as a company director), use ISAs to mitigate tax on interest and pensions for salary sacrifice relief (despite the new “cap”).
One great option is to map future income streams (wages, rentals, dividends) against frozen bands, stress-testing for 3% inflation scenarios over 5-10 years. You can also speak to your adviser about how to best diversify your assets (e.g. within SIPPs or ISAs) to outpace drag, balancing volatility with capital preservation for decumulation needs.
These are just some ideas, but speaking with an adviser will bring the most clarity and peace of mind. Regular reviews also ensure alignment, helping you adapt to Budget surprises without over-reliance on any single relief.
The UK’s recent tax policy volatility underscores the need for adaptable planning. By diversifying broadly across assets and wrappers, you can improve your resilience if the ground shifts again.
Remember, the stealth tax in the Autumn Budget is playing on the assumption that you will be inert as a taxpayer. Yet, by being proactive in how you structure your finances, you can preserve more of your earnings for goals like homeownership or legacy building.
If you’d like to ensure you’re taking the right steps to protect your wealth and safeguard your financial future, please get in touch.
Your capital is at risk. Investments can go down as well as up, and you may not get back the amount you originally invested. Past performance is not indicative of future results. Diversification does not guarantee profits or fully protect against losses. Tax treatment depends on individual circumstances and may change in the future. This content is for information only and does not constitute personal financial advice. Readers should seek independent financial advice before making any investment decisions.
Castlegate Financial Management Limited is registered in England No. 2077374. Registered Office: 8 Castlegate, Grantham, Lincolnshire. NG31 6SE. Authorised and Regulated by the Financial Conduct Authority. FCA No. 169777.
