British taxpayers are facing a triple tax whammy that could cost higher earners nearly £4,000 extra in 2025, according to new analysis.
The combination of higher capital gains tax rates (CGT), reduced dividend allowances and frozen income tax thresholds will hit workers across all salary ranges.
Those earning £100,000 will be hit hardest by this triple whammy of tax changes.
Even average earners won’t escape the tax squeeze, with those on £35,000 set to pay an additional £1,261 in tax.
The changes follow Chancellor Rachel Reeves’s October budget, which introduced higher capital gains tax rates and further reduced dividend allowances, while maintaining the freeze on income tax thresholds until 2028.
Capital gains tax rates have seen significant increases, with basic-rate taxpayers now paying 18 per cent instead of 10 per cent on most assets.
Capital gains tax rates have seen significant increases
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Higher-rate taxpayers face an increase from 20 per cent to 24 per cent on their gains.
The dividend allowance has been slashed, dropping from £1,000 to just £500 in tax-free dividend income.
Adding to the burden, the personal allowance remains frozen at £12,570 until April 2028.
This freeze, combined with wage inflation currently at 4.8 per cent, means more workers are being pushed into higher tax brackets.
The tax squeeze is particularly harsh for those earning between £100,000 and £125,140, where the personal allowance is gradually withdrawn.
The impact varies significantly across salary bands, with detailed calculations from Interactive Investor revealing the full extent of the tax burden.
Those earning £35,000 will see their fiscal drag tax burden rise by £358, while facing an extra £860 in capital gains tax on a £10,000 gain.
For £50,000 earners, the total additional tax reaches £1,831, including £783 from fiscal drag and £880 from increased capital gains charges.
The heaviest burden falls on £100,000 earners, who face a total increase of £3,836 in 2025.
This includes £2,788 from fiscal drag alone, despite some offset from the recent reduction in National Insurance from 10 to eight per cent.
Myron Jobson, Interactive Investor’s senior personal finance analyst, explained the impact of these changes.
He said: “More people have been dragged into paying tax or higher rates of tax as their wages rise and cross the unchanging thresholds, commonly referred to as fiscal drag.
“Those with investments held outside tax wrappers such as ISAs and pensions, which shield gains, dividends, and interest from tax, now face a significantly higher burden.”
He noted that the CGT allowance reduction from £6,000 to £3,000 in April 2024 particularly affects investors.
“This means gains held outside tax wrappers like ISAs and Sipps are now subject to greater tax,” Jobson added.
There are several ways taxpayers can reduce their tax burden in light of these changes.
Marriage Allowance allows couples to transfer up to £1,260 of unused personal allowance to their partner, saving up to £252 annually.
Salary sacrifice through workplace pension contributions can reduce taxable income, though this may affect certain benefits.
Investment strategies include using ISAs to protect future gains and dividends from tax through ‘Bed & ISA’ arrangements.
Spreading gains across tax years by timing sales carefully can help minimise CGT liability.
Losses on investments can be used to offset gains, while transferring assets between spouses allows couples to maximise their combined allowances.
For complex tax situations, Jobson advises seeking professional guidance from a certified tax adviser.
