How Tax Thresholds Could Reduce Your Take-Home Pay

Wages across the UK have been rising faster than inflation for over two years, the longest sustained period of real wage growth since the 2008 financial crisis.

However, many workers may still see less improvement in their take-home pay than expected. That’s because income tax thresholds have been frozen and will now remain frozen until 2031.

For members of Boom Community Bank, understanding what this means for your household budget is increasingly important.

What Is the Tax Threshold Freeze?

Income tax thresholds are the points at which you begin paying tax — or start paying a higher rate.

In England, Wales and Northern Ireland:

• The first £12,570 is tax-free (Personal Allowance)

• Earnings between £12,571 and £50,270 are taxed at 20%

• Earnings between £50,271 and £125,140 are taxed at 40%

• Income above £125,140 is taxed at 45%

Normally, governments increase these thresholds in line with inflation. But since 2022 they have been frozen, and the current policy extends this freeze until 2031.

This means that as wages rise, more people are dragged into paying higher tax bands, even though tax rates themselves haven’t changed.

Economists often call this a “stealth tax”.

How Could This Affect You?

According to official forecasts:

• Someone earning £39,000 today could pay around £465 more per year by 2030-31 because of frozen thresholds.

• Someone earning £50,000 could pay around £1,309 more.

As earnings increase, the proportion lost to tax may grow faster than many households expect.

This is particularly important for families already balancing:

• Rising mortgage or rent costs

• Childcare expenses

• Energy bills

• Existing credit repayments

Why Budget Planning Matters More Than Ever

At Boom Community Bank, we’re seeing more members reviewing their finances carefully, especially as small tax changes can have long-term effects on disposable income.

When take-home pay feels tighter, households sometimes turn to credit cards or overdrafts to bridge gaps. Over time, this can build up into expensive debt.

That’s where responsible lending through a credit union can make a difference.

Considering Consolidation Loans?

If you’re juggling multiple repayments, you may have searched for consolidation loans online. A consolidation loan combines existing debts into one single repayment, often at a lower and more manageable rate.

Unlike many commercial lenders, a community-focused bank and credit union assesses affordability carefully and offers transparent terms.

Responsible consolidation loans can help members:

• Simplify monthly repayments

• Reduce stress

• Avoid high-cost lenders

• Create a clearer repayment plan

Support for Families Receiving Child Benefit

For working families receiving Child Benefit, budget pressures can feel especially intense when unexpected costs arise.

A child benefit loan through a regulated credit union may offer:

• Fixed, predictable repayments

• No hidden fees

• Ethical lending standards

• Support if circumstances change

These loans are designed to help families avoid payday lenders or high-interest borrowing.

The Bigger Picture

The Office for Budget Responsibility estimates millions more people will move into higher tax bands by 2030-31 due to the freeze.

While frozen thresholds increase government revenue, they also mean households must plan carefully to protect their take-home pay.

At Boom Community Bank, our role as a local credit union is to help members:

• Save regularly

• Borrow responsibly

• Build financial resilience

• Navigate economic changes with confidence