Chancellor Rachel Reeves is set to deliver her first Spring Statement on March 26, 2025, with several billion pounds in planned spending cuts. As discussions around public finances intensify, speculation is rising about possible changes to income tax policies. While the government has reassured that significant tax increases are unlikely, many wonder if this Spring Statement will impact income tax, particularly in areas like business loans, insurance, and investments.
The government has indicated that major tax changes are unlikely, especially given the recent budget and a spending review scheduled for June. However, with Chancellor Reeves planning to write to the Office for Budget Responsibility, some key decisions could be brought forward, potentially affecting tax policies in unexpected ways. While no direct tax increases are expected, speculation continues, particularly regarding the freeze on income tax thresholds.
Income Tax Threshold Freeze – Extension Likely?
One major concern is the potential extension of the freeze on income tax thresholds, which has been in place since 2021/22. If extended, this freeze would push more people into higher tax bands, particularly as income levels rise but thresholds remain stagnant. This would impact many taxpayers, with over 37 million expected by 2024/25. Notably, this freeze has already affected over 8.5 million taxpayers over State Pension age.
From the government’s perspective, extending the freeze might seem appealing, as it avoids raising the headline tax rate. Instead, it means that any pay increases will be taxed at higher rates, affecting taxpayers without explicitly raising tax rates.
Broader Implications of Freezing Tax Thresholds
Beyond income tax, the freeze also impacts other tax areas, such as savings and investment taxes. Taxpayers moving into higher income bands face reduced personal savings allowances and higher capital gains and dividend taxes. This could affect asset finance and financial planning strategies, including those managed by financial advisors or stockbrokers assisting clients with investment portfolios.
What Can You Do? – 3 Tax-Saving Tips
Regardless of potential tax changes, consider these strategies to reduce tax liabilities:
- Harness the Power of Pensions
Contribute up to £60,000 to a pension like a Self-Invested Personal Pension (SIPP) and receive tax relief at your highest marginal rate. For non-taxpayers, a £3,600 contribution is eligible for tax relief. - Maximize Your ISA Allowances
Take advantage of the £20,000 ISA allowance, which shelters savings from taxes on interest, dividends, and capital gains. This is especially valuable for higher-rate taxpayers and can help optimize finance strategy. - Use Spouse’s Exemptions and Marriage Allowance
Transfer assets between spouses without triggering tax liabilities. This allows both to use their tax allowances and can reduce overall taxes, benefiting accountancy and finance business partnering
Conclusion
Although speculation continues, it seems unlikely the Spring Statement will bring significant income tax changes. However, if the freeze on income tax thresholds is extended, it could affect investments, asset finance, and business loans. It’s important to plan for potential changes by making the most of available tax-saving strategies, consulting with a stockbroker or financial advisor, and optimizing your finance strategy.
To explore investment opportunities, connect with one of our trusted financial advisors today.