Workers earning an annual salary of £52,000 are set to be the hardest hit by a series of new tax measures announced in the Labour government's Autumn Budget, according to a stark new analysis.
The 'Triple Whammy' Tax Hit
Pensions consultancy LCP has identified a "triple whammy" of tax increases that will disproportionately affect individuals with incomes between £40,000 and £52,000. The changes combine a new cap on salary sacrifice schemes, the ongoing freeze of income tax thresholds, and an adjustment to the student loan repayment threshold.
The most significant new measure is a cap on salary sacrifice schemes, introduced by Chancellor Rachel Reeves. These schemes currently allow employees to exchange part of their pre-tax salary for benefits like enhanced pension contributions, saving on both National Insurance and income tax.
From April 2029, the amount that can be paid into these schemes will be limited to £2,000 per year. Any contributions above this new cap will be subject to National Insurance charges, reducing the financial benefit for many.
Middle Earners in the Crosshairs
LCP's data reveals a surprising impact: the salary sacrifice changes will hit some individuals earning around £50,000 as severely as those on salaries of £140,000. This creates a notable squeeze on middle-income professionals.
Tim Camfield from LCP warned of compounding pressures. "To make matters worse, the repeated freeze of tax thresholds could lead many of them to become higher-rate taxpayers for the first time in the coming years," he said. "This is truly a triple whammy for this group."
Expert Advice and the Silver Lining
Despite the looming changes, financial experts urge caution rather than panic. Rachel Vahey, from investment firm AJ Bell, advised there is "no need to rush and make changes" to existing pension arrangements.
She highlighted a remaining benefit: "Despite the national insurance savings being capped, pension contributions will still be exempt from income tax, and workers can still enjoy pension tax relief up to their marginal rate of income tax."
However, Vahey acknowledged a quirk in the new rules means some mid-earning workers could experience a "bigger hike in their national insurance than higher-earning colleagues." This analysis underscores the complex and targeted impact of the latest fiscal policies on Britain's workforce.
