Tax freezes don’t sound as bad as raising taxes but they can still be just as damaging for your wealth. 

The government will announce tax freezes as a sneaky way of making it look like they haven’t raised taxes. After all, I’m sure most people don’t like it when their taxes go up.   

Over time however, tax freezes can potentially generate more money for the treasury than if taxes had gone up. 

The worst two tax freezes are currently in place for your two biggest assets.  

Your two biggest assets and the two biggest tax freezes  

Your two biggest assets in life are likely to be your home and your pensions and this just so happens to be the area where governments have frozen allowances.  

Before you pay tax on anything there is usually some form of allowance that you can earn or own a certain amount of money before you start paying tax.  


When it comes to your pensions you are allowed to accumulate £1,073,100 in total pensions known as the Lifetime Allowance.  

Whilst a proportion of your pension income will be subject to Income Tax the Lifetime Allowance test applies an additional tax on your pensions if you have ‘too much’. The tax charge can be as much as 55% on the amount above the Lifetime Allowance.  

In 2021 it was announced that the Lifetime Allowance would be frozen until April 2026. So whilst there may have been cheers that the rate of Lifetime Allowance tax did not increase, the fact that the allowance was frozen means more people will get caught paying this tax in the coming years.  

For example, if we use the average returns (11.5%) from a medium risk investment portfolio (60% equities/40% bonds) since the financial crisis then you only need a total pension portfolio today of £700,000 to be caught by the Lifetime Allowance in 4 years’ time.  


Even your home can face a tax charge on your death. Not good if you want to maximise the wealth you leave behind to your loved ones.  

Inheritance Tax can potentially be due on your death if your total wealth is above the Inheritance Tax allowances. The current tax charge is 40%.  

There are currently two Inheritance Tax allowances, the Nil Rate Band (£325,000) and the Residence Nil Rate Band (£175,000).  

The Residence Nil Rate Band can only be used against the family home providing it is left to linear descendants following certain rules.  

If you are married and have children you effectively have £1,000,000 in Inheritance Tax allowances. Sounds good so far however these allowances have also been frozen until April 2026. The Nil Rate Band has in fact been frozen since 2008!  

So whilst the actual tax rate has not increased in years, if we apply the average UK house price growth rate of 4.3% from the last 10 years a home valued at £850,000 is going to get caught in the Inheritance Tax trap in 4 years’ time.  

You might already find you have an Inheritance Tax problem if your total wealth is over £1,000,000. 

What you can do about the two biggest tax freezes 

Yes these tax freezes are only supposed to be in place until April 2026 but do we really trust the government to start increasing them again at this point?  

Remember successive governments have a track record of keeping tax freezes as they are.  

So it’s down to you to make the most of the opportunities to save tax. 

For pensions:   

  • Consider paying into your spouse’s pension if lower than yours and pensions for your children.  
  • Maximize allowances into other tax efficient investments like ISAs and General Investment Accounts. 
  • If you have more experience of investing and a higher appetite for risk, you could invest in the likes of Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCT) which provide upfront tax relief and tax free growth and income. 

For property: 

  • Review your Will and make sure your property is being left in the most tax efficient way.  
  • Make lifetime gifts where appropriate. 
  • Use insurance to cover Inheritance Tax bills. 
  • Ensure the rest of your wealth is held in Inheritance Tax friendly investments like pensions, AIM stocks and EIS funds. 

You may think once you retire that’s the end of the days when you pay high levels of tax on your income.  

Well think again. The government don’t stop coming after your wealth once you have retired so it’s best to have a plan to legitimately protect as much of it as possible.  

Here at RTS Financial Planning, tax planning is one of the four core services we offer. If you would like us to review your tax position and suggest savings then please get in touch for a free no obligation 15-minute call. We have carried out hundreds of tax reviews for our clients and have created many happy retirements. This could be you too! 

Risk warning:

Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.