REVEALED: How much Chancellor’s stealth tax raid will cost YOUR family

Huge hit to incomes looms – no matter what Mr Hunt says today

JErEMY HuNT is poised to deliver long-awaited personal tax cuts when he presents his Budget today, but don’t be fooled by any grand measures — your tax bill is still likely to be bigger than ever.

The chancellor has promised to alleviate the strain for millions of households as they face the highest tax burden in more than 70 years.

Mr Hunt is expected to slash National Insurance by 2p for a second time in six months — saving the average worker £450 a year — after facing intense pressure from Tory MPs to loosen the purse strings ahead of a General Election.

But even if he does, your income will still be eroded by pernicious stealth taxes hard at work behind the scenes.

A raft of freezes to thresholds has left households paying thousands more in tax on their incomes, savings, dividends and capital gains. Savers must also watch out for a handful of tax rises that are already set in motion for the new tax year from April 6.

Households are losing an extra £2,056 on average to tax this year thanks to frozen thresholds, according to calculations for Money Mail by investment platform Interactive Investor. Anyone earning £60,000 is more than £6,100 out of pocket this year alone.

OvErAll, taxpayers are on track to pay an additional £40 billion in tax by 2028 — and until the deep freeze on thresholds is thawed, the Government’s stealth tax grab will continue to ensnare millions of families.

The impact of frozen income tax thresholds is the most punishing for household budgets — and they are set to remain unchanged until 2028.

This freeze includes the personal income tax allowance — the amount of money you can earn before you must start paying tax — which sits at £12,570.

As earnings grow, the frozen allowances have pushed people’s incomes into higher tax bands — a process known as fiscal drag.

In the good times, thresholds have typically risen with inflation, shielding workers from paying proportionately more tax as their salaries rise. But fiscal drag is especially punishing when wages rise sharply while tax thresholds remain unchanged — which is exactly what has happened in recent years.

Workers earning between £20,000 and £50,270 — the higher rate threshold — will pay an additional £541 in income tax this year as a result of the freeze. They will also pay an extra £92 in National Insurance, according to Alice Guy, of Interactive Investor.

Ms Guy says: ‘The Government plans to freeze income tax and National Insurance thresholds until 2028, leaving us feeling poorer in real terms, even if our wages rise with inflation.

‘Frozen tax thresholds are a ruthlessly efficient way to raise the tax burden because they largely fly under the radar, gradually increasing our tax burden.

‘They have a painful impact on our finances because we pay tax on more of our income over time, leaving less to cover living costs.’

Even some pensioners are having to negotiate the selfassessment minefield as their income — including the state pension — takes them into income tax territory.

The Government’s stealth tax grab means that if someone’s income climbs above £12,570, they become liable to pay income tax at a rate of 20 pc.

The cost is even greater for higher-rate taxpayers. Anyone earning £60,000 will pay an extra £1,801 in income tax and National Insurance, while those earning between £70,000 and £100,000 will be charged an additional £1,934, Ms Guy calculates.

Millions of taxpayers are also likely to face a bill on their savings accounts for the first time.

Savers are set to pay £6.6 billion in tax this year — more than five times higher than two years ago — as rising interest rates mean even those with modest nest eggs are dragged over the threshold for paying tax.

Basic-rate taxpayers can earn up to £1,000 interest each year tax-free, outside of an Isa; higherrate taxpayers can earn £500 taxfree and top-rate taxpayers don’t get any tax-free allowance.

But these limits — known as the ‘personal savings allowance’ — were introduced in 2016, when the Bank of England base rate was just 0.5 pc and savings rates were woeful. Today, savers can earn on average 3.17 pc in easyaccess accounts, which is the figure used by Interactive Investor in its calculations.

ABASIc-rATE taxpayer earning £2,000 in interest on their savings this year would pay £200 in tax — £62 more than if their allowances had increased with inflation.

The cost is even greater for those earning more than £50,270, because they pay a higher rate of tax and have only half the allowance. For example, a higherrate taxpayer earning £4,000 in interest would pay £656 more than if their allowance had risen in line with inflation.

Those who have invested their savings in dividend-paying stocks or funds also face rising charges.

The annual dividend allowance will be halved from April to £500. The cut will reduce the amount that you can earn in dividends without paying tax to just a tenth of what it was as recently as 2018. It was slashed from £5,000 to £2,000 in 2018, and halved to £1,000 in 2023. HMrc estimates that more than 1.1 million extra people will find themselves paying dividend tax as a result.

Someone who earns £2,000 in dividends will pay £131 more in tax than if the threshold had increased with inflation. Meanwhile, earnings

of £4,000 will incur an additional £656 bill.

Ms Guy says: ‘Investors need to be on their toes. If you own shares or funds, then it’s important to consider protecting your dividends and any future gains by holding them within a tax-free wrapper, such as an Isa or pension.’

The annual capital gains tax exemption is also set to halve from £6,000 to £3,000 from April. This will mean anyone who makes a profit when selling assets or investments which exceed this amount will face a tax bill.

Working parents with young children are particularly stung by stealth taxes.

Child benefit, which helps with the costs of raising children, starts to decrease when one parent earns £50,000 and is entirely withdrawn once they earn £60,000 a year.

However, the threshold at which the high- income tax charge kicks in has been frozen since 2013, dragging 600,000 families today into cliff - edge tax rates.

The child benefit taper has meant that households where the higher earner makes between £50,270 and £60,000 can face marginal deduction rates of 55pc for one child, 63pc for two children and 71 pc for three children.

For example, families who have two children and one parent earns £60,000 are £2,213 worse off due to the frozen threshold, Ms Guy calculates.

Mr Hunt announced last spring that parents with children between the ages of nine months and two years will be entitled to 30 hours a week of free childcare from September of this year.

However, if just one parent has taxable income of more than £100,000 a year , they will not qualify for anything.

This threshold has been frozen since 2017 for parents who have older children.

Parents of two young children, living in London and earning just below the threshold, would miss out on up to £20,000 of free childcare a year if they earned as little as 1p more than they currently do, according to think tank the Institute for Fiscal Studies.

This means a parent earning £105,000 a year could be £20,000 out of pocket due to the frozen thresholds.