Two key allowances can protect £70,000 of your cash from 'stealth tax'

Taxpayers are being prompted to take advantage of tax-free allowances to soften the blow from escalating income tax bills. Financial gurus at Hargreaves Lansdown anticipate that Chancellor Rachel Reeves may persist with the previous Government's covert strategy, maintaining income tax thresholds as they are, so people quietly move into higher tax brackets as their income increases.

At present, individuals can have an income of up to £12,570 annually without owing any tax according to personal allowance rules. Earnings between £12,571 and £50,270 incur a 20% income tax rate.

Sarah Coles, personal finance lead at Hargreaves Lansdown, warned: "Rachel Reeves looks set to follow in the stealthy footsteps of the previous Government, by freezing the tax thresholds for even longer, which would take money out of our pockets by sleight of hand."

She noted that "thresholds have been frozen since April 2022, and by 2028, there will be 3.7 million more taxpayers, 2.7 million more higher-rate taxpayers, and 600,000 more additional-rate taxpayers than if allowances and thresholds had been indexed to inflation and the additional rate threshold kept at £150,000."

The higher rate of 40 percent applies for income between £50,271 and £15,140, with earnings above £125,140 attracting a 45 percent rate. You also gradually lose your personal allowance on earnings above £100,000, losing it entirely once you earn £125,140.

Ms Coles stated: "Every pay rise pushes more people into paying more tax – and means more will fall into higher tax bands. It has already been a massive cash cow, and it looks like the government is keen to milk it for even longer."

However, she also highlighted two key tax-free allowances that could help keep down rising tax