Chilling effect of frozen tax levels

By the Editorial Team · Wednesday, July 22, 2026

Inheritance tax revenues hit a record £2.3 billion in the quarter ending June, driven by the continued freeze on tax thresholds that brings more families into higher tax brackets. This policy, extended until 2031, has sparked debate over its fairness and prompted proposals to adjust income tax thresholds to ease the burden on middle-income earners.

Inheritance tax revenues reached a new high in the three months ending in June, with receipts totaling £2.3 billion, representing an increase of £96 million compared to the same period last year, according to figures released by HM Revenue & Customs (HMRC). The rise has been linked to the continued freeze on tax thresholds, a policy extended until 2031 by former Chancellor Rachel Reeves.

The freeze on income tax and inheritance tax thresholds means that more individuals are now subject to higher tax bands, despite not necessarily identifying as wealthy. Industry experts describe this phenomenon as an indirect tax increase driven by fiscal policy combined with rising asset values. Tom Trewby of Forvis Mazars described the situation as “a tax rise by stealth,” noting that escalating asset prices are bringing more families into the scope of inheritance tax liability than before.

The impact of frozen thresholds extends beyond inheritance tax. The ongoing policy means that income tax brackets remain static, causing taxpayers' income growth to push them into higher tax rates over time without an actual rise in earnings. This has sparked discussion among policymakers and within the public regarding the fairness and economic consequences of such measures.

In response to these concerns, Andy Burnham, the Prime Minister of Greater Manchester, has proposed adjusting the income tax thresholds by raising the starting point of the basic rate threshold from the current £12,570, while maintaining the higher and additional rate thresholds at their existing levels. This proposal is specifically aimed at benefiting “HENRYs” (high earners, not rich yet), a demographic characterized by relatively high incomes but also high living costs, who are often squeezed by the current tax framework.

The government’s approach to threshold freezes reflects a broader strategy to manage public finances post-pandemic but has been met with criticism from some analysts and advocacy groups who argue that it disproportionately affects middle-income families. Supporters contend that freezing thresholds is a necessary means to maintain tax revenues without overtly increasing nominal tax rates.

As tax receipts continue to climb, the debate over threshold policies remains central to discussions on taxation fairness and economic growth in the United Kingdom.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.