How much increase in income tax would cost YOU in Reeves’ Autumn Budget

BRITS could see their tax bill rise by up to £377 extra a year if Rachel Reeves hikes income tax in the upcoming Autumn Budget.

The Chancellor has refused to rule out hiking the tax in efforts to plug a fiscal black hole ahead of her statement on November 26.

Yesterday, Sir Kier Starmer refused to rule out whacking up income tax at the upcoming Budget.

Last week, Reeves reportedly said she would “continue to support working people by keeping their taxes as low as possible” but was still “going through the process” of writing the Budget.

The Chancellor said: “Although I can’t talk about individual measures at this stage, I understand that the cost of living is still people’s number one concern.”

Reeves is now widely expected to use the Budget to increase taxes once again.

That could include raising the basic rate of income tax by 1p, with the move helping to raise around £8billion.

But rumours are swirling that Reeves could even be looking at hiking the rate by 2p.

If the changes do take place, it would also be the first time the basic rate of income tax has been increased since the 1970s.

It comes as the Institute for Fiscal Studies estimates Reeves needs to find £22billion of tax rises or spending cuts to meet her self-imposed fiscal rule.

This is a result of higher borrowing costs, weak growth and an expected downgrade to official productivity forecasts.

The Sun has approached the Treasury for comment.

How could the change affect YOU

Income tax is paid at different rates depending on your income, and some people pay nothing at all.

That’s because there’s something known as the personal allowance. This is worth £12,570, and is the amount you can earn before you begin paying tax.

As it stands, those who earn between £12,571 to £50,270 a year are taxed at the basic rate of 20%.

Meanwhile, those who earn between £50,271 to £125,140 are taxed at a higher rate of 40%. Very high earners who make upwards of £125,140 a year are taxed at a rate of 45%.

If the Chancellor raised income tax across the board it could add hundreds of pounds to your yearly bill, according to figures crunched by the investment platform AJ Bell.

The company’s director of personal finance Laura Suter said: “If government wanted to change income tax, the most straightforward option would be to add 1p to the basic rate of tax, increasing it from 20% to 21%.

“That would cost taxpayers up to £377 a year in extra tax, with anyone earning £50,270 or more facing the maximum hit.”

How much you’d pay extra each year depends on your salary.

Should Reeves choose to hike income tax by 1p, those on a £15,000 salary would see their tax bill hike from £486 to £510 – an increase of £24 a year.

While those on a £20,000 salary would see their bill rise by £74 a year from £1,486 to £1,560, and those on a £30,000 salary would be paying £174 more a year.

Those earning £35,000 – which is roughly the average salary in the UK – workers would be paying £224 more a year and would see their tax bill rise from £4,486 to £4,710.

Those earning a higher salary would be hit by the biggest bill increases.

For example, those on a salary worth £50,270 and over would be paying an extra £377 a year in income tax.

How to protect yourself from tax hikes

These measures have not been confirmed by government officals, so you will have to wait for the Budget next month to see what changes are actually taking place.

If you are concerned about potential tax hikes, you can take steps to protect your finances.

Alice Haines, personal finance analyst at Bestinvest, said workers can explore ways to reduce their taxable income and even drop into a lower tax band.

This can be achieved through salary sacrifice, which is a scheme offered by some employers that lets staff reduce their salary or bonus payments.

In return, you get a non-cash benefit, such as increased pension contributions or childcare vouchers.

Alice said: “This is because by reducing your gross salary, it reduces the amount of income tax a worker must pay and the National Insurance Contributions for both the employee and employer. 

“Employees close to the £50,270 earnings threshold, for example, where the higher 40% tax rate kicks in, could dip under it by using salary sacrifice.”

The expert said another way to drop into a lower tax band is to pay into a private pension.

That is because contributions can lower your income, pulling you into a lower tax band and reducing your bill.

She said: “Pension saving not only boosts future retirement income but also slashes your income tax bill today because any contributions attract tax relief at your marginal rate.”.

But remember, once the money is added to your pension, you cannot touch it until you are 55, or 57 from 2028.   

And if you’re married or in a civil partnership, you could save on tax by transferring up to £1,260 of your personal allowance to your partner.

This reduces your tax bill by up to £252 a year.