The hidden tax rise hitting the UK
HMRC’s latest tax receipts for December may look encouraging at first glance, but the headline figures flatter to deceive.
While they offer the Treasury a positive way to close the calendar year, they increasingly reflect a tax system shaped by structural design choices rather than a genuine improvement in economic conditions or household finances.
This is the view of Shaun Moore, Tax and Financial Planning Expert at Quilter, who notes that PAYE Income Tax and NICs receipts for April 2025 to December 2025 are £347.8 billion, which is £36.3 billion higher than the same period last year.
“December is often boosted by bonus payments and year-end pay adjustments, which can temporarily inflate the figures. However, the more persistent driver remains fiscal drag. With income tax thresholds frozen, a growing number of people are being pulled into higher tax bands or paying more tax on the same real level of income.
“While headline tax rates have not changed, the share of income being taken in tax continues to rise in the background. This means higher marginal rates are being encountered earlier in people’s careers, without any single moment that feels like a traditional tax rise,” he said.
Over time, this approach delivers a steady uplift in revenues, but it does so by gradually stretching household budgets rather than reflecting broad-based improvements in productivity or living standards, Moore said.
Capital Gains Tax dissapoints
Capital Gains Tax receipts for December came in at £231 million, compared with £335 million in 2024. However, CGT receipts from April to December total just over £1.8 million, just below last year’s figures for the same period.
“In theory, the scope for higher CGT revenues remains clear. The annual exempt amount has been cut sharply in recent years and higher rates on many assets have increased the potential tax due on disposal.
“In practice, the data continues to show how sensitive capital taxes are to behaviour. Faced with larger potential bills, investors often delay selling, reduce disposals or restructure their affairs, which can dampen receipts even under a tougher regime,” said Moore.
“As a result, CGT remains one of the most volatile parts of the tax system and an unreliable source of steadily growing revenue.”
Inheritance tax grows
Inheritance tax receipts reached £6.6 billion in December, which is £0.2 billion higher than the same period last year.
Although growth in IHT receipts can appear relatively modest month to month, the longer-term trend remains firmly upwards. With the nil-rate band frozen at £325,000, rising property values and accumulated savings are steadily pulling more estates into the tax net.
What was once viewed as a tax affecting a relatively small minority is increasingly becoming part of mainstream financial planning, including for families who would not traditionally consider themselves wealthy.
That pressure is set to intensify further in the years ahead, particularly with pensions due to be brought into scope for inheritance tax from 2027.
