We recently ran a survey* looking at the biggest Budget fears for people in the UK – and fears about being forced to pay more income tax topped the list across the board.
The bad news is that even if it doesn’t get a name check in the Budget speech, these tax bills will rise.
Income tax thresholds are already set to remain frozen in the coming tax year – so pay rises will push even more people over into paying higher rates of tax. In fact, these are frozen all the way until 2028.
But with new rumours swirling and Prime Minister Keir Starmer refusing to rule out breaking Labour’s pledge to not raise income tax, there’s a chance more could happen.
This article isn’t personal advice. ISA, pension and tax rules can change, and their benefits depend on your circumstances. If you’re not sure what’s right for you, ask for financial advice.
Maintain the ‘stealth’ tax
One persistent rumour is that the income tax threshold freeze could be extended for even longer.
One in 20 people from our survey said their main concern about the Budget is a longer freeze in the thresholds. This remains a possibility, because it’s a useful stealth tax.
By only taking a larger share of a pay rise, it means people won’t be worse off than they were before the pay rise, so won’t notice the full impact of the extra tax.
Will there be a rise in income tax rates?
There has also been growing speculation that the rate of income tax itself might rise, 16% of people are most worried about this tax rising.
This would be politically very difficult given that it was stubbornly ruled out during the General Election campaign.
However, given the size of the financial shortfall the government is said to be facing, the alternative would be a huge array of smaller changes. While this could raise more modest chunks of tax with each minor change, it could cause serious issues for anyone affected.
The more minor changes they make, the more far-reaching these impacts become. The Budget last year demonstrated the widespread dissatisfaction that can come from this approach.
Instead, it may feel it has no choice other than to raise one of the big hitting taxes, and they don’t get much bigger than income tax. HMRC models the impact of raising income tax every year.
The figures from June 2025 show adding 1p on basic rate income tax could raise £6.9 billion more in 2026/7, £8.25 billion in 2027/8 year and £8.2 billion in 2028/9. Adding 1p on higher rate income tax could raise £1.6 billion more in 2026/7, £2.15 billion in 2027/28 and £2.1 billion in 2028/9.
In an environment where there are no great and popular choices, the government will need to find the least worst options, so savers and investors need to consider the potential impact of these changes.
What can you do about it?
The most important thing to do, is not to rush into making a decision that you could regret. Think it over, talk with family or friends and, if you’re not sure, you can seek financial advice.
If you’re concerned about income tax rises, one way to reduce your total taxable income is through making extra pension or Self-Invested Personal Pension (SIPP) contributions.
This could also enable you to stay below a tax threshold – cutting your highest rate of tax. It won’t give you more money in your pocket today, but it will help you build a more resilient retirement in the future.
If we assume that tax relief remains at your highest marginal rate, it would also raise the rate of tax relief, so you get more out of every penny you put into your pension.
Just remember though, you can only access money in a pension at 55 (rising to 57 in 2028). You need to pay enough tax at the higher rate to claim back the full amount of tax relief.
If you’re worried about tax on your cash savings, and you have the ISA allowance available, saving in a Cash ISA will protect your interest from a higher rate of tax as any interest you get from cash within the Cash ISA is exempt from income tax.
For those looking further ahead and comfortable with the risks, you could consider using a Stocks and Shares ISA and investing your money for the long-term. Investing generally outperforms cash savings over five years or more and a Stocks and Shares ISA is free from Capital Gains tax and Income tax. Remember that all investments fall as well as rise in value, so you could get back less than you invest.
For those aiming for a retirement income that might exceed future tax thresholds, using Cash ISAs and Stocks and Shares ISAs alongside your pension could give you flexibility in managing your tax bill in retirement.
* Figures in this article are from a survey of 2,000 people by Opinium for HL in October 2025.
If you think you could benefit from getting expert financial advice from a professional, get in touch with our advisory team today. You won't get personal advice on the call, but they'll talk you through the advice service we offer, including charges and connect you with an adviser if you'd like to go ahead.
Our advisers can recommend how you can make the most of your tax allowances through financial planning. But if you need complex tax calculations, your adviser might recommend you speak to an accountant to complement their advice.