"Middle" income families could be nearly £4,000 worse off in 2024/25 due to ongoing freezes to income tax and Child Benefit tax thresholds, according to new calculations.
Even with the Chancellor’s two percentage point cut to the National Insurance rate for employeesInsurance rate for employees, families with salaries between £30,000 and £100,000 are set to be worse off due to fiscal drag, NFU Mutual’s analysis suggests.
A six-year freeze to the personal allowance and higher rate tax band means as wages have grown, millions are finding themselves dragged into the higher rate tax band.
Meanwhile, the High Income Child Benefit tax Charge threshold of £50,000 has not risen since it was introduced in 2013, leading to more families being affected.
Chancellor Jeremy Hunt will deliver his Spring Budget on March 6
PA
A family of four with the highest earner getting a £60,000 salary is set to pay £3,953 in extra tax and National Insurance contribution (NICs) liability in 2024/25 due to fiscal drag, the analysis has found.
If the salary were £70,000, it would be £3,905 in extra tax, and £2,024 for salaries between £80,000 and £100,000.
Parents with two children earning a salary of £30,000 face an extra tax and NICs liability of £751 due to fiscal drag.
Sean McCann, chartered financial planner at NFU Mutual, said: “If the tax-free Personal Allowance remains frozen this year, as previously announced, it will be 60 years since it was frozen for this long – and that deep freeze is having a huge impact on households.
“Middle income families with children are bearing the brunt of the pain, particularly once one parent’s income hits £60,000 and they lose all their Child Benefit through the High Income Child Benefit tax Charge.”
He added: “What were once deemed high levels of income are becoming more common, affecting more families as a result.”
If the High Income Child Benefit tax Charge (HICBC) threshold had increased with Consumer Prices Index (CPI) inflation each year, it would stand at £68,461, research has found.
Mr McCann said: “It’s been over a decade since the Child Benefit tax was introduced with a threshold of £50,000 which hasn’t changed since.
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“As a result, a growing number of families are being caught in the net as incomes increase.”
The chartered financial planner said “in many cases”, increasing pension contributions could help reduce taxable income to below the 40 per cent income tax and Child Benefit tax thresholds.
GB News has contacted HM Treasury asking for comment.
An HMT spokesperson previously said: “The Charge means that the government can support the majority of families while ensuring stable public finances.
“The Government has recently announced improvements, taking steps to allow employed individuals to pay HICBC through their tax code and parents to receive a National Insurance credit retrospectively.”
