Welcome to the world of taxes, where heat can always be found but "freezing" seems to be the trend.
Let's uncover why personal tax allowances keep being frozen as part of a plan by governments to sneakily collect more tax.
Frosty Reality of Personal Tax Allowances
Talk of freezing personal tax allowances may sound innocuous enough, but don't be fooled - this is actually just another means by which government attempt to raise taxes undetected.
Here's the trick - personal tax allowance, which determines what an individual can earn before having to pay income tax, typically increases with inflation.
However, when governments 'freeze' these allowances they remain unchanged, regardless of inflation. Thus, as your income rises with inflation, your taxes go up automatically, as the allowance remains unchanged, in some cases people can be pulled into higher rates tax brackets due to this freezing, making you pay even more tax.
Governments do not always stop there: freezing Inheritance Tax (IHT) allowances and Capital Gains Tax (CGT) allowances, provide even further tax increases to some individuals.
Ice Age: The IHT and CGT Allowances Freeze
Just when you thought the year had come and gone, cometh another twist in the form of freezing Inheritance Tax (IHT) and Capital Gains Tax (CGT) allowances - an act of fiscal wizardry worthy of applause from every audience member!
By freezing IHT allowances, the government cleverly ensures that as your property or estate appreciates in value (which it probably will), its appreciation exceeds the existing IHT allowance and more of your wealth enters taxable estates - much to the delight of the treasury, as more tax in collected!
CGT allowance reductions can be like the cherry on the cake: as more of your profit from selling assets - like property or shares - is exposed to tax, it becomes harder and harder to enjoy your warm cup of tea! It can feel like trying to sip it in an icy rainstorm!
So it appears that this "freezing" has left us all out in the cold, paying more in taxes, despite it all not looking like a rise – brilliantly, sneaky, yet an undeniable reminder of taxes, as an inevitable aspect of British winter!
The Icy Impact of Allowance Freezing on Wealth Creation
Allowance freezing can have devastating repercussions for wealth accumulation. It acts like an icy blast that dismantles years of accumulation efforts, leaving nothing behind but pain and misery in its wake.
Due to frozen personal tax allowances, there's less room for your wealth to increase, as the tax-free threshold does not move. Any gain, such as salary increases or inheritance, could push you over into another tax bracket and force additional payments into it. With IHT and CGT allowances in the deep freeze, your assets and capital gains are even more vulnerable to being exposed to tax.
The effects on wealth creation are subtle yet profound. Building a snowman during a blizzard can be like trying to build it with one finger; no matter how much snow you accumulate, the wind (or in this case, the taxman) always seems to blow more away. So while a freeze on allowances might not seem like much on paper, its impact would make even the Abominable Snowman quaff with disdain.
The Big Thaw?
Although "freeze" might sound harmless, its implications are anything but, when applied to taxes, freezes can often result in hidden tax increases - something we should all strive to prevent from happening!