The Chancellor’s 2025 Autumn Budget delivered a familiar mix of headlines, announcements and political positioning. But beyond the noise, one measure stands out for its long-term impact on the finances of millions of households: the continued freeze on key tax thresholds. 

This decision affects Income Tax, National Insurance and Inheritance Tax, and has now been confirmed to run until at least 2031, extending what is already one of the longest freezes in modern tax policy. While nothing changes tomorrow morning, the effect over time can be substantial. 

How the freeze works  

When tax thresholds stay fixed, but earnings and asset values rise, more people gradually move into higher tax bands. This effect – sometimes called fiscal drag – isn’t felt in a single moment. 

For example, someone receiving small annual pay increases may find themselves crossing into a higher Income Tax band. Similarly, more workers may move beyond the frozen National Insurance thresholds as wages grow with inflation.  

Over time, these shifts can influence overall take-home pay, saving habits and the cost of everyday life. 

Why the freeze matters for Inheritance Tax 

The freeze on the Inheritance Tax nil-rate band (£325,000) and the residence nil-rate band (£175,000) is particularly important. Both have been fixed for many years and will now remain unchanged until the early 2030s. 

During this period, property prices in many regions have continued to grow. That means estates that once sat comfortably below the threshold may now exceed it, and more families could find themselves facing an IHT bill for the first time. 

 For households thinking about passing wealth to future generations, this is where early planning can make a meaningful difference. Understanding the impact of the freeze helps families decide whether to:  

• use allowances and exemptions more proactively 

• make gifts during their lifetime 

• review how property and other assets are structured 

• consider the timing of major decisions 

 Small actions taken steadily over several years can be more effective than waiting until later when options may be more limited.  A long-term measure that rewards early awareness  The nature of this freeze is gradual. Nothing shifts dramatically from one year to the next. But by the early 2030s, its cumulative effect could be significant for many households, particularly those whose incomes or estate values grow steadily over time.  By understanding the timeline now, individuals and families can:  

• anticipate how their tax position may change 

• adjust saving and investment plans 

• explore estate planning earlier 

• reduce the likelihood of unexpected tax exposure 

The more time people have, the easier it becomes to make thoughtful, informed choices. 

Taking the next step 

Everyone’s circumstances are different, and the impact of the threshold freeze will vary from household to household. A conversation with a financial planner can help you understand what it may mean for you, and which steps (if any) are worth considering now. 

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This content is for general information only and does not constitute advice. The information is aimed at retail clients only. The content was accurate at the time of writing, changes in circumstances, regulation, and legislation after the time of publication may impact on the accuracy of the article. The Financial Conduct Authority does not regulate advice on taxation or estate planning.  

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